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:
As the weather turns and the building season gets under way, many contractors are still trying to get paid from projects they completed last season. This puts me—the supplier—in a difficult situation as those same contractors still owe me some, part, or all for those past projects. I don't want to ship more product to them without getting paid on the old balance, and they say they can't pay me without getting more product for this job. So what do you do?
Signed, Baffled in Billings
Dear Baffled,Yes, the old "I can pay you but I just need you to give me a little more product and wait a little longer so I can make that happen" routine. For those of us who remember the old Popeye cartoons, it’s time to quote Wimpy: I will gladly pay you Tuesday for a hamburger today.
I understand your frustration and the challenge. Several potential responses always go through my head when I hear this:
1. Seriously? I have been trying for months to get you to pay, you blew me off during that time, and now you want me to work with you?
2. How did your problem become my problem?
3. What have you been doing to collect your money?
4. If you can't pay me, how are you managing to keep the lights on and eat? Someone is getting paid.
5. Is this really your cash flow plan—using me as your Mom?
All that and so much more filters through my head. Only the filter between my head and my mouth keeps it in check. Occasionally something slips out, like "Are you kidding?" (And for the record, NO, they never are.)
What's a credit manager to do? If you play hardball, these folks may go down the road and buy from your competition, taking with them a possible way for you to get paid without having to pursue them legally. If you ship more product, you've just made the hole deeper, using hope as your credit tool to get paid off. Wow, what luck to have such great options!
A Little Discomfort Greases the Wheels
I don't really care for those options. The above scenarios leave me with all the risk, all the skin in the game. I much prefer that we both have some discomfort, a more level playing field. If we are both a little uncomfortable then we both are equally motivated to get this paid.
Start by engaging the slightly misguided but still willing customer in a solutions-driven conversation. What can they offer? You will absolutely need to drive this conversation in a non-combative manner.
I usually start with a recap of the situation. "Mr. Customer, you owe $$ on your account. We have worked with you to get this paid but it hasn't gone as well as we would both like." Yes, dear credit manager, I realize you may be choking on these word. But remember, use FLIES WITH HONEY people! If you are insulting, snotty, condescending, or sounding like a lecture at the principal's office, you will not get the desired results.
Then move into the next phase, still continuing the groundwork. "We (insert your company name here) would really like to help get this resolved, but we are really uncomfortable sending out more material. What can you bring to the table to take some of that away--you know, level the playing field?” At this point, the customer may be a little unsure about what you are asking and will most likely say so.
Maximize Their Assets
So spell it out: What assets do you have to put up? List them: Property, vehicles, boats, ATVs, other toys. Ask for a personal guarantee if you don't already have one. Granted, a personal guarantee isn’t a great form of security, but you are looking for the response. What are these nonpayers willing to do except give "their word as their bond?" Lay it all out. If you have ever given a horse a wormer or a dog one of those giant flea pills, you can equate it to this. It is a little bitter and a lot to take in, so just do it all at once and then wait.
Once I broach the subject and lay it out, I shut up. Give the customer a chance to digest what you have said. Remember, you do this for a living and deal with it daily. Your customers don't. Once they start asking questions you can move to the really productive part.
The conversation usually continues something like this: "For this to work, the risk can't all be on my side. For this to work and be fair, we should both be invested." You can make the security a short-term thing. Put an expiration date on the personal guarantee or when you will release the other security with the understanding that once the account is under control or paid off, there is a light for the customer as well.
So what if you already have a personal guarantee or they say they have nothing? Do your homework before you start this negotiation dance. Dig a bit and see what they own. Sometimes you have to jog someone's memory. Don't accuse; just offer up a casual "what about that boat?" They may skip a beat, and perhaps say it isn't paid for in full. That fine; I will be second. I need to see a commitment level. If they keep saying no, then that tells me they want to pay, but they really don't want to be accountable.
Try a Consent Judgment
Depending on the dollar amount, suggest a consent judgment. Short version: We sue you, Mr. Customer. You agree to be sued and not file an answer and allow us to obtain a judgment (they are agreeing, so it is much cheaper). Tell them you are not going to file it unless the unlikeliest happens and they don't pay you. Then you have all of this out of the way and haven't lost a bunch of time. Yep, that was the bitter pill again.
At the very least, make a repayment document with the dollar amount owed and the terms of repayment spelled out and have the customer sign it. Anytime someone has to sign something, it is a show of commitment and a mental reaffirmation and will assist you in court if it comes to that.
If you can't find anything and they won't give up anything or agree to any of your options, then you have a hard decision in which you must weigh risk vs. reward. For instance: Can you use a mechanic’s lien on the new project? That way, at least you have a remedy if the customer doesn't come through so the hole isn't getting deeper.I know you are looking for that magic bean, a fairy tale ending to this dilemma, but you will have to be your own knight in shining armor. You have to slay the objections in question and come up with a solution that allows you to sleep at night. That might mean walking away and pursuing other collection actions.
You are making the best decision you can, at that time, with the information you have. Sometimes the story doesn't always have a happy ending, but at least you pursued every avenue.
