Meet Ron Kastein, president and owner of Barker Lumber in Delavan, Wis., a small lake resort near the Illinois border, and two more yards in small towns across the state line. Like many dealers in this housing recession, his sales are down, cash flow has slowed to a relative trickle, and outstanding balances on credit accounts are extending beyond agreed terms.

PAYMENT PLANS: Ron Kastein, president and owner of Barker Lumber in Delavan, Wis., isn't afraid to get creative with his late-paying pro customers, if it helps both businesses weather the current economic conditions. But he also takes precautions to protect his own interests. Barker calls or meets customers several times a month, slightly discounts some items that can help complete a job, and sets up monthly debt repayment plans. Photo: Robert Tolchin The same can be said for Mario Espineira Jr., vice president of Deco Truss Co., which supplies a full range of framing materials out of its Miami location. With the industry in South Florida suffering more than just about anywhere else in the country, Espineira has seen his average receivables triple to 60 days outstanding from 20 during the last 18 months. Meanwhile, his wholesale suppliers continue to put pressure on him to pay on time–or risk having his shipments held at the loading dock.

In their own markets and in their own ways, Kastein and Espineira are managing their accounts receivables, credit policies, and delinquent accounts to achieve the delicate and increasingly difficult balance between staying in business and retaining a viable customer base. Both are loathe to engage collection agencies to strong-arm past-due accounts–some of them long-term and loyal patrons–yet know they must get tougher on every contractor who is holding or seeking credit from their businesses if these dealers are to pay their own bills and weather the recession.

And so they and other dealers have gone back to school, to Credit 101 class, to find the mix of account management tactics that will satisfy those conflicting objectives and make sure their businesses are standing when the dust clears.

"Dealers are becoming much more open to solutions and willing to do what needs to be done to protect their interests," says Tracey Richardson-Newton, director of credit risk management at BlueTarp Financial, a commercial trade credit provider based in Charlotte, N.C., that partners with several dealers nationwide. "At some point, you need to be prepared to take the next steps to resolve the balances owed to you." Here are some of those steps.

Get (Progressively) Tough

The practice of using funds from one job to pay off another may be unethical and in some cases illegal, but it's embedded in the construction industry culture.

Like a Ponzi scheme, though, robbing Peter to pay Paul only works when income keeps flowing into the pipeline; when the well runs dry, the practice is exposed.

"In the past, we'd roll with customers that were 60 to 90 days out because they would eventually catch up," says Kent Porter, vice president of Porters Building Centers, a seven-location dealer based in Kearney, Mo. "Now, we can't allow that because there are no new projects coming in [for the contractor]."

Breaking builders of that habit, though, requires dealers to take a tougher stand when collecting on past-due accounts and from those that have yet to cross that threshold. "You have to have a strategy and plan to turn up the heat, if necessary," says Richardson-Newton.

Like many dealers, Porter takes a progressive and somewhat flexible approach to collections, "We call or write [a late-paying customer] before we go into collections mode," he says. "Especially if the amount is over $1,000, we might offer a monthly installment deal, like $250 a month without service charges, if it helps the customer pay his bills."

Similarly, Espineira sends a reminder letter. He also offers to charge a credit card, something that 76% of dealers also accept as a form of payment, according to a survey conducted by ProSales.

Though Espineira considers each account on its own merit, he also doesn't hesitate to drop the hammer if delinquent accounts fail to respond. "For 90% of our customers, if there is no effort made to pay within 30 days, we cut off their credit and shipments," he says, reserving more flexibility for the remaining 10%. "If it gets to 60 days outstanding, we start making more formal demands," such as filing lien notices or engaging an attorney.

As a customer's debt extends further, perhaps to the point of default or write-off, dealers might employ a variety of subscription-based online tools to track down deadbeats through public records, file suit in small claims court, or hire a collection agency–steps that usually mean the permanent loss of a customer. "At that point, your probably don't expect to retain that customer anyway," says Richardson-Newton.