A better approach to Get cus ting paid while keeping tomer relationships strong collections

IIJour-o youR AppRoACH to collecting delinquent payY Y ments from a customer vary if:

You knew the contractor was going out of business?

Your contractor's business is about to double and you stand to benefit?

You're actually losing money on this customer? Your customer has been a loyal, profitable customer for the last l0 years?

Of course it would. Then why do most dealers have a one-size-fits-all approach to collecting late payments?

Every situation isn't the same and we advise dealers to be strategic about how they collect. What we mean is that dealers should take efforts to properly assess the true risk of not getting paid and also understand the relative prof-

Map Your Customcc by Thelr Profltablll$ and Rbk itability (or lack thereof, sometimes) of the customer. Putting those two pieces together gives you a simple, powerful framework for how you should approach collecting.

To understand which customers are in trouble, pull credit three times a year and look at trends that matter. There are obvious warning signs such as delinquent accounts with other dealers. A more subtle one might be a contractor whose borrowing amounts are steadily creeping up to historical highs. To understand the true profitability, go beyond looking at gross profit dollars to factor in a customer's share of your delivery, administrative, borrowing, inventory and other costs. For example, it's especially important to reflect that someone regularly paying you slowly could be costing you 2Vo-4Vo more than your average customer. That can often make the difference between a customer being profitable and unprofitable.

Do this analysis at least once a year and then chart where your customers are on a 2x2 risk vs. profitability map.

Hopefully many of your customers will fall into the "Love" quadrant. They are low risk-they always pay on time, they don"t have any trade delinquents-and they have good profitability. We would be blessed if all customers were in this box. That's certainly the aspiration, but unfortunately not the reality.

The "Escape" quadrant in the lower-left is the opposite. These customers are not only high risk, they are also zero or negative profitability for you. These are customers that are about to tip over and they are already costing you money. Run far and run fast.

The other two quadrants are more challenging. Some customers will be high risk but profitable. These belong in the "Protect" quadrant. They are extending themselves pretty far and are causing you concern. The key here is to protect yourself and take the worst case off the table.

Your remaining customers are in the "Address" quadrant. These are low risk, but are low or unprofitable customers. They could be well-established companies that don't have any problem paying you. But they're paying you slowly or they have price discounts or they have delivery considerations-for these reasons or others you're actually not making any money on these accounts.

So what does it mean to tailor your collections approach? For the "Love" customers that are high profitability and low risk, liberally waive their fees, thank them for their timely payment, and treat any collections call as a polite reminder. Lateness here is often a bookkeeping error or something that got missed.

For the "Escape" customers-those that are ready to tip over-suspend the account if you haven't already. Move them to COD, assess fees, prepare and file liens, and if it gets delinquent enough, consider a collections agency. These are customers that are not likely to continue to be customers and may not be in business much longer.

The "Address" customers are low profitability and low risk. Collections calls are always polite reminders here but this is the group where you should confidently assess fees to help improve their profitability. Alternatively, modifying pricing can get these customers to be more profitable ones.

Lastly, the "Protect" quadrant is really about taking the worst case off the table. A customer may be 60 days late, bumping into a pre-set line that you've set, and looking to buy more. This is the time to ask them to pay down the line. This is also the time to monitor them more freouentlv.

A monthly pull from a credit bureau may be necessary, and be ready to take more aggressive action if the risk worsens. Things might be fine, but if they're not, you are positioned to take action.

Tallor Your Colloctlonr Appro$fi (LEAP)

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A one-size-fits-all approach is straightforward and easy to execute, but there is a better way. It takes only a little upfront effort to understand customer risk and profitability. The benefits are worth it, I promise you.

- Scott Simpson is c.e.o. oJ BlueTarp Financial, which helps dealers grow and protect their business by proJessionallv managing their credit program Jrom beginning, to end. Reach him at (207 ) 797-5900 or ssimpson@ bluerarp.com.