So this business owes me money....

[Fluid Power]

I own an industrial distribution business. We have a customer that has always been a slow pay. In the end though, we always have gotten paid. We do about $250k a year with this customer and we make pretty good margins because of the fact that he is a slow pay. He is into me for about 60k. It looks less and less like he is going to catch up this past due amount. In the last 2-3 months we have been shipping orders COD. We are getting into his busy season and the COD orders are getting larger and larger. The problem is, when I mention the outstanding debt, he always tells me next time and of course it never comes. The question is, what do you guys think the course of action should be? Should we stop processing the current orders (at even better margin than before?) Suing is an option, my best friend is my attorney and the cost is zilch. Collecting a judgement is impossible though. Make him an offer to reduce the debt and pay 40K now and forget the 20k? (He probably doesn't have the cash.) I am stumped for sure. Any advice is welcome. Thankfully, we are big enough that, while it still stings really bad, it does not jeopardize the business. Thoughts?

Darren

[Flash68]

Man this really hits home for me and my business over the past couple years (construction staffing/recruiting).

Here's what I've landed on. If you are diversified enough in your client base and revenue stream and this customer represents a small total outstanding aging for you at any given time (including his peak season), then maybe you tolerate his slow pay. And it sounds like you have your money cost factored in and the margins are what's keeping him around. If you can "afford" to drop him and he falls into that 80/20 rule, then consider that.

Not knowing your annual revenue/profit numbers, if he is a small enough portion of your business, then dump him. Not worth the hassle.

If he is a large portion of your business (doesn't sound like it) then dump him. Not worth the risk and cash flow shock issues it can present.

If he's somewhere in between, that's the tough call for you to make. I have mechanics lien rights in my state of business so I have some added protection many vendors/suppliers do not. Not sure what protection you have as far as liens, etc.

[bdahlg68]

Ignoring the $60k past due, he is currently a great customer. As long as he's paying COD, keep doing business and reminding him. If you have the ability, raise prices a bit, do so. He clearly doesn't have a ready alternative because COD is a pain in the you know what. In fact, he could be more past due elsewhere.

I'm working in a troubled supply situation where the company was $7 million PAST DUE in paying it's vendors! That is past due, not what they owe and does not include long term debt! Unreal....

This guy could be doing a similar thing. So, if you're not likely to collect with lawyers involvement, don't bother. Just take his money other ways.

[Sieg]

In the flooring industry over my 35+ years I've watched a lot of distributors get strung out by customers they've had relationships for years in down economies. Mediocre business practices and management usually catch up with them, especially in this downturn. I've seen more distributors take the hit than save the customer, though you'll most likely hear of the failure vs. the save.

Tough call, emotion is typically not your friend in business decisions, the party in debt usually takes advantage of the situation. We've had more than one long-time builder customer take us for $40-80K in the past few years filing bankruptcy.

Is writing off the bad-debt from a solvent customer an option? Can you have a talk with the owner (preferably in person) and voice your concerns and make your decision based on his responses?

[4mm]

Raise your prices to him over the course of the year in order to offset what he owes and then wipe the slate clean. Of course, discuss it with him first.

He probably owes elsewhere, that's why he is still doing business with you.

[GregWeld]

Typically I always judged WILLINGNESS over ABILITY. Some of my largest customers were the slowest pay - they knew they could get away with it.... but I'd bend over backwards to work with someone that DID WHAT THEY SAID THEY'D DO.... i.e., if we worked out a payment arrangement and they stuck to their side of the agreement. That's the WILLINGNESS.

I think you have to assess whether this customer has ANY willingness to get caught up. Then take it from there.

[Sieg]

Well said Greg, it's a fine line though.

[GregWeld]

Originally Posted by Sieg

Well said Greg, it's a fine line though.

I agree -- it's a very fine line -- but if the customer has the willingness to make things right - regardless of how long that takes (payment plan of some type) you eventually end up with getting your money back - or some of your money back. Otherwise it's a ZERO. AND you lose a customer. If the customer has the willingness to get caught up - then it's a win win (except for the loss of interest / carrying costs on the past due).

I found I could "live with" a guy that was a good guy -- and tried to do the right thing.... over a guy that just stiffed me.

We all know that unsecured creditors wind up getting zip in lawsuits. So that's a zero.

[Fluid Power]

Thanks guys. I agree that we will take what we can get while we are getting it. That seems to make the most sense.

Darren

[GregWeld]

We could get a posse and ride around his house shooting our guns in the air....