The Whimpy Syndrome
I have always equated the process of credit and collection with Whimpy's line from the Popeye cartoon, "I'll gladly pay you Tuesday for a burger I can have today." Whether it is food, auto parts, or plumbing and heating supplies, the challenges of handling accounts receivable are the same. As sure as Tuesday will come, the payments do not always follow. And in this economy, even if customers are willing to pay, they are facing challenges of their own.
Lynn Van Berkel
Working with delinquent customers during difficult times can pay off. Once the slow months have passed, they usually remember how you treated them when they were down. But there is a difference between working with a customer and letting them take advantage of you.
In Whimpy's case, if the burgers keep coming, he expects that he will continue to get them and does not realize there is a problem unless someone brings it to his attention. The same goes for slow-paying customers. If you allow them to continue charging so they can generate cash to pay previous invoices, they can end up in over their heads. As long as the product keeps coming, they think everything is fine. The problem is that, when their mind-set is that all is well, there is no sense of urgency to make changes to how they operate their business. Even though they are making minimal monthly payments toward the old balance, they may actually be losing ground to the point where they cannot get caught up.
Taking a tough-love approach may hurt sales initially but, in my experience, putting the customer on COD sooner forces them to live within their means. It causes them to take a closer look at what is going on in their operation and you may actually be helping their business in the long run. I have even had customers thank me afterward for putting them on COD. Some prefer to continue doing business that way to keep a closer eye on what is coming in and going out.
I've had dozens of customers over the years who would become past due; we'd put their account on COD plus 25 percent and once their balance was finally paid in full, they would ask for credit terms again. Inevitably, they would be back on COD within a couple of months.
I now keep in mind the adage: "If you do what you've always done, you'll get what you've always gotten." Once a customer is current and I'm deciding whether or not to allow charge privileges again, I ask the customer, what changes can be made to prevent the balance from going past due again? Is there something we need to do differently to get the invoices to them sooner? What adjustments are they willing to make on their end to keep the account current?
If the customer is not willing to make an effort to improve, then I am less likely to work with them. By giving customers an incentive to alter their paying habits, I am more likely to have better results than I've had with them in the past.
Another method I have had success with is asking a customer I am concerned about to pay every other week rather than once a month. I feel more comfortable because it keeps the exposure down and it is more manageable for them because they pay in smaller increments. This way I will also be aware of cash flow problems sooner if a mid-month payment is missed rather than waiting until month-end.
In some cases, our customers are having problems collecting from their customers. I have offered help in collecting money owed to them by sending samples of collection letters, providing the names of reputable collectors, and notifying them of lien seminars etc. These are tools they can use to improve their cash flow.
As credit managers, our jobs are much more than just dialing for dollars. We need to be creative in finding ways to help our customers wisely manage their businesses so they can break out of the Whimpy syndrome.
Lynn Van Berkel CCP, CPC, is in Customer Financial Services with Design Air, Milwaukee, WI. She can be reached at 920-735-8202.