Net 30 – Yes or No?

Deciding on whether or not to extend credit to customers is a life or death decision for any business.

You can’t pay your employees, your suppliers, your landlord, or the government if your customers don’t pay you.

You can pay for credit reports from companies such as Dun & Bradstreet, and their fees are reasonable.

However, I have found a “one strike you’re out” strategy to be very effective, and better yet, free.

Common payment terms for most business to business transactions are  Net 30, Net 45, Net 60 or even, Net 90. (This means your customer has that many days to pay for the goods or services they buy from you.) My terms are Net 30. Large corporations ignore that and pay me according to their rules. I don’t acknowledge their terms, but I don’t fight it either. I know I’ll get my money. However, I will give priority to orders from faster paying customers. Life is tough, deal with it.

There are companies who pay their bills late or worse, don’t pay their bills at all. The reason? They are slimeballs. Plain and simple. Otherwise known as deadbeats.

Whenever a new customer asks to open an account, I ask them to send a list of 3 trade references and one bank reference. How they respond to this request tells me more than how their trade references respond to my requests.

They probably don’t pay their bills, either on time or at all, if:

• they don’t send the references right away
• they don’t put in fax numbers for their references, and expect me to call their references and ask for fax numbers
• they get defensive when I ask them to send the references in the first place
• all of their references are small companies in their local area
• phone or fax numbers are wrong

After I get the references, I print out a formal letter and fax it. Most companies will reply promptly as a business-to-business courtesy. Remember the rule: honesty is everything in business.

My rule for evaluating the replies is simple, all of the references that reply must state that this company pays their bills on time, and has done so for at least 5 years. I deny credit if one reference comes back with questionable results, like “usually pays 15 days late”. One strike and you’re out.

If a company can’t supply me with 3 vendors who they pay on time, every time, then they certainly are not going to pay me.

I’ve learned to be direct when I make the phone call to tell the customer they are denied. I tell them that our credit rules are strict. I play the “we’re just a small company and can’t afford to take chances” card, and ask them to use a credit card. If they argue with me, it strengthens my resolve to deny them credit. I’m like a Chinese finger – the harder they pull, the tighter it gets.

I don’t accept CODs. Why not? Once bitten, twice shy.

I once had an out-of-state customer buy a $3000 product from us. He had applied for credit but was denied. He declined to use a credit card. I approved COD. Mistake. He cancelled the COD check while it was in the mail to me.

This customer was a subcontractor for a large corporation. When my bank informed me that the check bounced, I called the customer. No answer. Day after day – no answer. So, I called the large corporation where my product was installed. The plant manager told me there was nothing he could do about it and I should try small claims court. That is not an option when they are thousands of miles away and I have a business to run.

I found the phone number of the corporation’s headquarters on Google Finance. I called and asked for the name of the CEO and what would be the best address to use to send him a letter. I then sent a letter telling the whole story, and explaining that his company was using stolen merchandise on their plant floor. Plain and simple. Direct.

Two weeks later I got a call from the plant manager. He asked if I had been paid yet. He then asked for the whole story. After I explained it to him, he promised he would get back to me in a week. Didn’t happen.

I called him two weeks later and got a runaround. So, I wrote another letter to the CEO, reminding him that he was still in possession of stolen property.

Three days later I got a call from the plant manager asking me to fax him a copy of the invoice and stating that they would cut a check that day. Sure enough, I got paid.

No more CODs.

Net terms are good for the customer and for the supplier. It puts extra impetus on the supplier to make sure they ship quality merchandise and it gives the customer a month to decide if they have purchased shoddy merchandise.

There can be no compromise – if they don’t pay their bills, don’t ship the goods. It is a matter of business life or business death.

PS – Use the satellite views with Google Maps or Bing Maps to view your customer’s location. You can see if they are operating out of the back of a barn, or are in a large facility.

Advertisement