Opinion: When Your Customer Doesn’t Pay
By Winston Aston
Chief Executive Officer
TransCredit Inc.
This Opinion piece appears in the Aug. 24 print edition of Transport Topics. Click here to subscribe today.
Will today’s slow-paying customer be tomorrow’s bankruptcy? To get a proper grip on this very real possibility, let’s look at some staggering statistics:
• Every 96 seconds, a company in the United States closes its doors.
• Every 60 seconds, a shipper’s credit score changes.
• Every seven minutes, a company in the United States declares bankruptcy.
• Every four hours, ownership of a company changes.
Are your palms sweaty and your blood pressure up? You are not alone.
Continued increases in unemployment are exacerbating the mortgage fiasco, and experts estimate that more than 600,000 vacant homes haven’t yet made it onto the banks’ books as foreclosures — and there’s more to come over the next two years.
Projections for the ailing U.S. auto industry indicate the automakers will begin to crawl out of their quagmire about 2012.
Corporate failures — a.k.a. your customers — number 73,000 this year alone.
The question everyone from the credit manager up to the CEO should be asking themselves is: “If the business climate has changed, which it certainly has, what changes are we making in how we view our customer’s credit?”
Following are some suggested changes that will give any transportation company a heads-up toward providing a solid structure for managing cash flow and keeping your company in good corporate health through these trying times.
Begin by identifying the areas where your potential for catastrophic loss is greatest. It’s time to get real with your assessments.
My company’s collections arm ran the numbers for 2000 to 2007 and found that 78% of all bad debt experienced by brokers and truck lines came from customers who had been on the books for two years or more. I suspect that percentage will be even higher when 2009 ends.
You may have done your “due diligence” and ordered a credit report three years ago on a shipper that has been paying just fine ever since. Since then, you’ve been lulled to sleep by the tunnel vision of your own payment experience and are clueless about that customer’s record for paying other carriers. In reality, you may be his favorite carrier — the only one paid on time while others are experiencing slow payments or no payments.
Guess who could wind up taking the hardest hit in the end? Let’s look at how you might have avoided this blow to your cash flow.
At the top of the list of things you need is access to the customer’s credit records — 24/7/365. Those records reflect how they pay other carriers, compared with your payments.
Next, you need a system to alert you to declines in the shipper’s payment trend (days to pay) or financial stability (credit score).
We often are forgetful, as in: “I forgot to check their credit report last month.” A computer-controlled alert that e-mails a notice to you about a decline in a customer’s ratings is a necessary part of a proper credit-management system.
Those first two steps are preventive measures that will see you safely through most issues, but what happens when the customer falls beyond your payment terms?
In his poem “The Kicker,” 19th-century writer and humorist Josh Billings wrote, “I hate to be a kicker, I always long for peace, but the wheel that does the squeaking is the one that gets the grease.” His comment still rings true today, but how do you develop a system that tactfully, but relentlessly, asks for the grease?
Begin with a sales attitude that encourages the customer to pay you according to your terms. This is not the time to threaten or “lose it” emotionally. It is, however, time to institute a continuing — i.e., relentless — request until you are paid in full.
It also is very important to make your regularly scheduled requests on days you calculate that customers will be experiencing enhanced cash flow.
Any extension of credit has its risks, of course. When you have executed the recommendations just outlined and the bill is still outstanding in the 75- to 90-day range, you must make the decision to “get tough,” even if it means losing the account.
If you wait for the bill to be 120 to 180 days old before taking action, all you have done is to allow the debtor to pay others before you. By then he really and truly may be out of cash, and you’ll lose by default.
So, how do you get tough effectively? Call in a professional bill collector, preferably one with a reputation in the trucking industry for maximum effectiveness and the ability to make it difficult for a deadbeat shipper to move products to market without paying you first.
No one can stop a thief who intends to take what he can and run, but in the case of customers who are trying to stay in business despite cash flow problems, cooperating with you or your collection agency becomes a matter of common sense, especially when they understand that you mean business.
Founded in 1987, TransCredit Inc., Jacksonville, Fla., provides credit-related services to the transportation industry in the United States and Canada.
