Credit guru Thea Dudley has spent more than 30 years in LBM credit management. Now she's here to answer your credit and collection questions. Got a question for her mailbag? Contact Thea at [email protected]
Dear Thea,
What do you do with deadbeat ex-customers who keep coming back? Do you give them another chance? How many chances do you give them? One of my sales reps brought a request for credit from a customer that burned us three years ago. Do you make them pay what you wrote off? Is the customer under the impression something has changed or I forgot?
Signed, No Second Chances in Spokane
Dear Second Chance,
There is a saying that goes something like this: If you love something set it free, if it comes back to you it is probably because no one else wants it. Maybe I remember it wrong, but it's fitting. I love all my customers. Until they don't pay me, skip out, and make me do paperwork for a bad debt write off.
I have always been a “kill ‘um and eat ‘um” kinda girl. That was until the recession and being part of a for-profit business contributed to my “flexible ethics” and shareholder value-watching soul. The recession altered the way credit was done. Remember “handshake” deals, word is my bond, and other misnomers? That's way over.
So, yep, your customer is under the impression that since your sales rep is talking sweet nothings in his ear, that all is well, forgiven, and he will be welcomed back into the family as if nothing happened. After all, stuff happens and you're a much larger company then little ol’ him and you should help a guy out.
My first reaction, much like yours: What?! Are you crazy? Why would we invite this known non-payer back into fold and give him a credit line? What has changed? What about that past Habitat for Humanity donation we made in his name? We didn't get a tax break for that, you know.
Once you get past the emotional onslaught that comes from having to relive the memory of the bad debt escapades (this may take some therapy: wine, going for a run, trip to the shooting range, bourbon), start calculating how you can turn this into a win. What is in this for your bad debt recovery and profitability moving forward?
A conversation with the prodigal son is in order. What has changed? What can you work out with your customer so he can pay off the back debt? Short of being discharged in a bankruptcy, everything is negotiable. As credit managers we want every dime owed to us, plus interest. Maybe some pain and suffering. The reality of dealing with a bad debt rewind really boils down to what is the best deal you can cut? It may be a crappy deal, but is it the best crappy deal you can get for your company under the circumstances and with the information and opportunity we have?
Your sales rep has to be on board with this conversation. Whitewashing it or beating around the bush does not work. It just mucks things up and mostly wrecks the one shot you may have at getting the old debt addressed and recouped in some form. So if your rep is telling you he is going to talk to the customer about it, offer to talk to the customer yourself. And when I say offer, I mean tell him. As professional credit managers, we know the options, how to approach it, and how to word it so we can get a deal crafted. We are used to having to tap dance on a pinhead, address the obstacles, listen patiently to whatever drama caused the unfortunate non-payment episode, and circle back around to the issue at hand and strike a deal.
Depending on what you learned in your conversation, it may present you with an opportunity for a one-time settlement or payment plan (with some type of security - real property, life insurance policy, consent or stipulated judgment - at the very least a written acknowledgment of the debt) to put a stake in that old debt's heart and allow you to move forward.
Before just handing out a credit line on trust, their good name, and a promise to pay (been there, got bucked off that horse), start them out on COD, plus a little extra on the order that goes to the bad debt recovery. If you can get something worked out, then I would consider giving them another shot. A lot depends on the attitude. If they are arrogant and behave as though I am lucky they are talking to me, chances are it is not going to happen.
Multiple time offenders? I am firmly in the NO camp. I can work (although skeptically) with the “everyone deserves a second chance” motto, but after two torchings, it is a trend and a lifestyle choice that I am not down with. I have shareholders, a CFO, and a whole host of other titles that I have to explain those choices to.
After two strike outs, I am not giving them a third time at bat. One time can be explainable. Second time, nope. Most sales reps get it; they don't want to waste all that time and energy to see it deteriorate into the world of non-profitable sales. There are the persistent few that keep dragging that untrained puppy back into the building, swearing it will be different this time, and working really hard to explain away the past. I guarantee you that puppy will pee all over the carpet again (sorry for the visual). It's slightly easier to take if the sales rep is new, slightly, but still offensive to you, the credit manager.
Depending on how egregious the bad debt violation was (usually the larger the debt, the more bitter the credit manager) or what the circumstances were, the effort they put into avoiding me and what they did with the money all factor in.
Some bad debt memories you just can't bounce back from. As a credit manager I have a long memory, an evil streak, and a lot of patience. Remember that.
