Late-Paying Customers

(Continued from previous page) make a friend of the person who actually cuts the check.

And if your customers are lacking something they need in order to pay you, this would not be a good time to be condescending at their inefficiency. Your effort to quickly provide it without them having to run it down in their company instead, could put you at the head of the line for payment.

Discounts for Prompt Payment

This is an old technique that worked well years ago, but has fallen into neglect in recent years as business practices evolved. The old "2/10 net 30" was, and still is, a fantastic deal if explained to customers clearly.

Consider this: a 27o discount for paying 20 days earlier than normal amounts to an annual return of 36Vo: not a bad yield for a customer whose savings account is probably earning 2Vo a year. Even if your customers planned to pay in 45 days, getting them to pay in 15 days instead represents an annual return to them of

24Vo.

You can juggle the numbers any way that makes sense in your industry, but the key is getting the customer to understand the value they get from paying promptly.

And, by the way, if you do business with certain organizations, e.g., local governments, many of them are required by their policies to take advantage of such discounts. Key point; You must be strict about charging back discounts taken when payments don't come in on time, as some customers will try.

The "Preferred Customer" Plan

Want to think out of the box?

Consider a special program for "special" customers-free overnight delivery on rush orders, extra discounts, advance notice of price changes, special sales, etc.

Promote this as a customer benefit and make it available only under certain conditions, one of which would be consistent payment in accordance with your terms. Don't make sheer order volume a condition if your lowvolume customers produce higher margins, as is often the case.

A small invoice that gets paid on time is a blessing compared to a large one that takes 90 days to come in. Still, make the conditions list beefy enough that it doesn't look like a poorly disguised collection program. Use it as an opportunity to reward the customers you enjoy doing business with, especially those who pay on time every time.

Key point: Avoid the risk of alienating customers who are in the program but then fall behind in one or more criteria. Give them the opportunity to rejoin the program after two to three months of again meeting all conditions for participation.

You can appreciate your customers' dilemma in trying to stretch their cash. But that's not the same as agreeing to be their banker-interest free! You can extend their payment terms, as many companies do at times like these, but in the end you still need to collect your money by a date you can plan on.

And you need to avoid alienating your customers in the process. If you do everything you said you wouldquality products, competitive price, prompt delivery, etc.-then it's reasonable to expect your customers to do everything they agreed to, including prompt payment. Still, these days most suppliers will get paid late by most of their customers.

Follow the suggestions above and you can be the exception to the norm, the stand-out in the crowd, and certainly a better positioned company when the economy turns around again, as it always does. Wouldn't that be great?

- As Your CFO For Rent and president of Western Management Associates, Gene Siciliano has spent over 20 years helping clients build financial stength and shareholder value through applied knowledge and process improvement. He is author of Finance for Non-Financial Managers. Reach him at gene@cfoforrentcom.

Lowe's Refocuses On

Lower profits have prompted Lowe's to reduce store openings next year and focus more sharply on helping do-it-yourselfers.

After reporting that profits fell l9%o in the second quarter, the chain revealed plans to open just 35 to 45 new stores in 2010, down from 62 to 66 this year. In contrast, it opened over 100 new stores each year from 2001 to 200'7

When the chain examined its sales, it found that products for basic projects, maintenance, and repairs performed best.

"With this resurgence in mind, we've tweaked our staffins model

Gore Customers

to ensure departments that feature more project basics like paint, rough plumbing and electrical, and hardware remain appropriately staffed," said president Larry D. Stone. "Many customers are looking to Lowe's for home-improvement products and for how-to information to successfully complete their projects."

On a brighter note, Lowe's has seen an increase in detail feessmall charges for taking in-home measurements for installs-in recent weeks, suggesting homeowners finally may be getting closer to beginning postponed projects.

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