Make Sure Your Customer Can Pay … Even If He Wins Business
David Gordon
Posted On March 25, 2013
Throughout pockets of the country distributors are seeking signs of an improving economy, helping improve revenues and hopefully profitability, presuming that they can be paid.
We recently received George Hedley’s e-newsletter. George is a consultant to contractors in the construction trade. His company is Hard Hat Presentations (and his a very good speaker to contractors). His March newsletter’s subject line was “Caution – Is Your Cash Flowing?” He said:
Watch Your Cash Flowing……….. As the economy starts to recover slowly and some of your competitors leave the game, everyone anticipates more work opportunities.
CAUTION!
There will be more work in the near future but it will continue to be priced very cheap as companies scramble to replenish their work volume and revenue streams. This can cause a CASH FLOW problem if you don’t watch it carefully. More work is a good thing. Low margins are a bad thing. Combine these and you create a crunch on your ability to make payroll and pay your bills on time. Also watch out for subcontractors and smaller suppliers who will get caught up in the feeding frenzy and grab too much work which will shrink their ability to perform.
Therefore it is a better decision to stay focused on specific projects and customers with higher profit margins than to go after every job and every customer that asks you to submit a bid. Be CAUTIOUS as these offers come your way. Be sure to pre-qualify your customer:
– Do they have the money?
– Are they financially sound?
– How many bidders on this project?
– Do they have enough strength to finish?
And as we all know, if contractors are not being paid by their customers, they can’t pay their suppliers (distributors) even though the distributor needs to pay the manufacturer (unless extended terms for a project are negotiated.)
What does this mean? Make sure your salespeople understand their customer and are pricing appropriately to cover any extended receivables and keep your credit department aware.
How are your receivables?
1 Comment
A large number of small/medium contractors simply don’t understand the dynamics of cash flow and may never do so. Many are tradespeople first and have limited business knowledge or sophistication when it comes to how they run their business.
We have learned that we have to set clear boundaries, remain consistent (but flexible for extenuating circumstances) and follow through promptly when commitments are not met. To the extent we accept excuses in lieu of payment on any regular basis, we tend to get more of the same, more often.
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