RPELSBHf''S

ignore costs of credit and how those costs can vary widely bY customer.

Bill Lee, LBM industry veteran, reports that the fully-loaded cost of credit for most dealers is between 3.5Va to 5Vo of sales. If that number sounds surprising, it's because those costs are not contained on one line of your P&L but sPread out across it. Costs of credit are not just the legal bills and bad debt on a small number

.& *"o Lumber Service, we suPPlY donestlc and forelS- hardwoods. Otrr products and servlces lnclude:

. Hardwood Lumber & Plne

. Hardwood Plyrood & Veneers

. Melamlne PlSnrood

Hardwood Mouldlng (dder' cherr5l' mahogany, MDF, maPle, red oak' Palnt grade, pccan hlckory, white oak, walnut' beech)

. Mllllng (mouldtng;proflles, S2s' SLRIE, SLR2E, & resaum lumber)

. Woodworklng Accessorlcs (appllques' ornamentg, butcher blocks' corbels' etc.)

Woodworklng Supplles (deft flnlshes' color putty, adheslves' etc.)

Or" products are wldely used ln lnterlor finlsh carpentrXr' furnlture' cabtnctry and hundreds of lndustrlal and nanufacturtng appllcations. We stoek a complete ltne of complenentary products to completc virtually any woodworktng or millwork proJect. of accounts but also the cost of money and cost to collect payment ctn ull accounts. For dealers rvho have higher delinquencies or have contactors taking them out 60. 90 or I 20 days. those c()st\ clrn lcally ltld rrp.

So. if your largc prospect pays everyone clse slowll'. how will thcy pay yorr'? Yctr-r qot it. Thci,'ll pay you slowly, too. Knowing this..fitttor it i nlrt yttrtr prit'itr,g u1tfi'rttrt.

[,et's usc un exarnple. Say your averagc customer spcnds $100 ancl nets $25 in gross profit. or 25(/c. When you factor in warchousc. de lir,cry. salcs. administrativc ancl financrng expense. the net profit of thc average customer is 47..

Let's also say )'ou have a line of credit that is 67c interest rate annually , or 0.57c for every month. Someone who regularly pays y'ou 60 dai,s late is costing y<'tu lc/c more in borrou'in-t costs (two extra months r 0.5%). That means this customer is occupyine rnore of your credit manager's time by requiring check-ins and collecrions cltlls. You ltte spcltrlittt In()t'e tilne intcrnally discussin-!: this cr-rstctnter. and you lncl your salcs rcps arc relchin-{ out to check in on payntcnt too. taking morc valuable tintc arvav tktnt

,growing your busi ness.

The 80/20 rule generally applies here-20o/o of your customers are occupying 80o/c of your time. The time lost isn't fake money-you are paying yourself. your sales reps. and your credit manager real money. and this is where they will be spending some of their timc to the exclusion of other work. When you add it up. rathcr than havin-9 administrative anci l'irrance costs bc 3%. l-or the ar,'crage customer, thcy're more like 9% Now y<ru stand not to ntakc 4%.but actr.rally Iosc 2%!

Most dcalers I know get wisc after someone has strung them out, and then try to fix this after that fact. Sometimes it works, sometimes it doesn't. It's just a lot harder to do. If you factor in what this whale is going to cost you, inclutling the higher cost ol- eredit. make sure you price it accordingly. Celebrate the win and sleep well knowing your large new cllstomer will also bc a profitable one.

ScotI Sirrtlt.son is r'.ett. ol BlucTurp I'irttrttt iul. n'hiclt ltelps LIIM dculers gntw tltcir .sule.s uttd deliyer rrutra.for thcir conIftt(tor.\ by pntlcs.tiottullt' nanuging tltair /rtutc trtdit proerunrs. Rcoch hin ot (207) 7 97 - 59()() r s.s i n p.u tn (4) b I u c r u rp r r un.