Keep Your Customers Paid Up
Wednesday, May 13, 2015
Receivables are a major problem for nearly every contractor. It’s not unusual for contractors doing gross sales in the $1 million range to have anywhere from $100,000 to $200,000 outstanding at any point in time. Of course it depends on the mix of business. If the company is heavy commercial the $200,000 range could easily be exceeded since payment, by contract agreement, is often 30, 60 or 90 days. If the company is primarily residential replacement and service the number should be well under $100,000 for a $1 million business.
When times are busy the paperwork often gets left undone. We’ve all thought the same thing: "Yes, I know I should collect on the job, or at least bill immediately after the completion of the work. But I'm busy! We are behind schedule, the parts are late, and I have three jobs to quote this evening. I will invoice my customers when things slow down a bit."
Nothing wrong with that logic except for one minor detail: things never slow down! So when do we bill? Typically when we are out of money and payroll is coming up and/or it's time to pay our distributor!
Keep your customers current and paid up. Why? So they have the freedom to continue to buy from you. Let me explain with an example. Let's assume I am a handyman around the house, and I like to do small projects around my house on weekends. Each weekend I purchase my materials from the same local hardware store. A typical weekly purchase is $30 to $50 worth of materials, and I always pay with cash or credit card.
Now there is a three-day holiday weekend coming up. That means I can tackle that really big job I been putting off for lack of time. In order to get a jump start, I stop by my local hardware store on Friday evening on my way home from work. The bill comes to $200; however there is a small problem. I don't have $200 cash on me and my do-small-jobs-around-the-house credit card is at the house. However that is not a major problem. I've been buying from this store for a number of years. I know the owner and most of the employees. Bottom line, they allow me to charge the $200 worth of materials.
A week or so later the bill comes and I put it with the other bills to pay later. My long weekend project drags on for a few more weekends; meanwhile I have not paid my hardware bill. Maybe I was low on funds or perhaps I simply just never got around to paying it. Now I need a hammer. What are the odds of me going back to my same hardware store to buy it? The odds are slim since I owe them $200. My fear is that if I go to that store the clerk will jump up and holler out "Mr. Grandy, Mr. Grandy, you owe us $200!"
The reality is that the clerk probably has no idea who owes them money and who doesn’t, but I don’t want or risk it. Instead, I went to another hardware store to buy the hammer I needed. When I went to the other store they might have a better selection, lower prices and/or better informed employees. Bottom line, I ended up liking the new store better than the old one!
Now think about what just happened. I stopped buying from the original hardware store for one reason only – I owed them money and did not want to risk being embarrassed over my unpaid bill. Not being paid up just cost the old hardware store a customer. The best thing you can do for your customer, and yourself, is to keep your customers current and keep them paid up!
Before we wrap this up let me share one other tidbit with you. Be sure your business is customer friendly. In other words, understand exactly when customers are most likely to want and/or need you. I’ll give you another example. My wife has been going to a natural food store downtown to buy honey. The honey was $17 a jar, but my wife considered it worth it. A few weeks ago, we got 12 inches of snow, which is a LOT of snow for our area. The day after the storm, the main roads were clear so my wife and I drove down town to buy some overpriced honey. The store was closed, presumably because of the weather. The next day we called, but were greeted with an answering machine telling us to leave a message. Finally, on the third day, my wife was out of honey and needed some to make granola. Since our downtown store was still closed, she went to the organic section of the local grocery store and found organic honey for $12 a jar. She got home, sampled the honey, and liked it. The grocery store’s organic honey just replaced the $17 a jar honey we had been buying downtown. Get the point? The store where she wanted to buy the honey was closed and she was forced to purchase elsewhere and guess what happened? Just like our hardware store example, the end result was a lost customer.