In these times of slow sales, chances are at least some of your customers are paying late—or not at all. And that probably includes a healthy smattering of long-time, valued accounts.
But, while it’s always tricky collecting from deadbeats, the task involves a particular sleight-of-hand when you’re dealing with important, long-standing customers. The company, for example, may simply be going through a rough patch—and by using a too-tough approach, you could risk permanently damaging the relationship. “I see many small businesses facing this dilemma,” says Josh Turner, who heads Gateway CFO Solutions, a St. Louis-based consulting firm. “They’re concerned these valued customers will leave them if they take too hard a stance.”
Here’s how to tread lightly—and successfully—when approaching such customers.
Decide just how valuable the customer is. Before you do anything else, you need to determine whether it’s worth bending over backwards for the client. You may discover, for example, that, while some customers have done business with you for many years, they’ve had a long record of late payment. On the other hand, someone who’s been a consistent source of referrals is probably worth keeping.
Most important is figuring out the lifetime value of the customer. That means taking into account everything from how long you’ve been doing business to the amount of their average order.
Talk about it face-to-face. Your best move is arranging a time to discuss the situation in-person. But don’t pose it as a threat; instead, “offer to have a conversation where you can provide input into their business and see how you can be of assistance,” says Issamar Ginzberg, a small-business consultant with Monetize Intellect in New York.
Once you get together, you can try to pinpoint the reason for the late payment. Then, your response should depend on the nature of the problem. For example, if it’s because their own clients have been stiffing them, then you might suggest a team approach, where you both work together to get the ultimate customer to pay up. “If you apply joint pressure, you might have better success,” says Turner. He points to a 50-employee cabinet maker that recently had trouble getting paid by a construction company it had worked with for many years. When they discussed the matter, it became clear the problem was that several home owners—the builder’s ultimate customers—weren’t paying their bills. So, with the company’s permission, the cabinet maker wrote the clients, threatening to file a claim. They paid the bill.
If the problem is more a matter of poor cash flow, then you’ll need to try other steps, anything from offering extended payment over a certain period of time, to taking a lien on a piece of equipment. You can also offer to let them pay with a credit card if it’s not something you usually allow. Another option: offering quarterly, rather than monthly, payment for, say, a 5 percent discount.
Or, you can accept in-kind payment. Take Amy Krakow, president of Propaganda Marketing Communications, a four-employee marketing firm in New York. When a long-time client, a maker of gourmet food products, had trouble paying, she offered to let them provide Christmas presents for all her clients. “They sell very expensive treats that I couldn’t have given away otherwise,” she says.
Whatever you come up with, however, it’s best to propose at least two approaches to payment. “Getting your customer to pay you is much easier when you give them options,” says Ginzberg.
Meet with someone in a position of authority. Make sure the person you see is a top manager. The reason: You want to make sure he or she has the ability to put through payment quickly. “If the individual has the authority, you can be moved to the top of the pile,” says Turner.