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Reporting Bad Customers and Managing Accounts Receiveable

I recently posted a blog on effective ways to enhance the collection of overdue receivables, but afterwards it occurred to me that there are two approaches: the carrot and the stick. Generally, I have favored the carrot: developing a relationship to build sympathy and a sense of commitment to solving a non payment problem. I figure that there is no such thing as a bad customer, just a bad payer, and that in the grand scheme of things we dont want to lose any customers unless they are total dead beats. Therefore it is important to try and work through the problem without resorting to threats, since such actions, even if succesful, are likely to upset the future business dynamics.

I am curious on current practices and frequencies of referring bad payers to D&B, collection agencies or legal action, and how effective it may be, and at what price. Does anyone have any views on this matter?

 

 

Answers

Dan Ryan
Title: CFO
Company: Privately held
(CFO, Privately held) |

I have reported a few late payers manually to D&B. I'm actually not sure that it has any effect b/c I'm not seeing their credit reports after I report them. However, it sure makes me feel better! Although I only do this for companies that have either defaulted or been eggregiously late. I typically try to give my customers plenty of time to respond to overtures so as not to ruin any possible ongoing relationship. I've been on the other side of needing to extend payments and it's not fun - nor is it always terminal - so I try to give the benefit of the doubt when possible.

Simon Westbrook
Title: CFO
Company: Aargo Inc.
( CFO, Aargo Inc.) |

Im not sure which is worse, being the customer who is not in a position to pay, or being the creditor who is desperate to be paid. Either way, the key to maintaining and developing a working relationship is honesty. If you dont have the money you cant pay, no matter what threats or actions are taken. If you are honest about the prospect for incoming cash flow and where the unpaid debtor stands in line, and you fulfill your promise, most relationships can be saved no matter how overdue the payment

Sara Voight
Title: Controller
Company: Critical Signal Technologies, Inc
(Controller, Critical Signal Technologies, Inc) |

I have never reported a late paying customer. Instead I work on positive reinforcement for payment on time. Staying on top of our collections means that we don't have a customer who has hijacked our cash flow requiring us to make concessions to maintain a partial payment on outstanding, and also current, invoices. When I see a problem starting I reach out and offer solutions. Most of the time it has to do with limiting their credit and staying in constant contact. Ultimately, a non-paying customer can put me out of business so I create a partnership that gets more attention than a straight black and white collections policy.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

On a slightly humurous note, I did tell one customer years back (I knew him well and he was honest about his cash flow problems) that if he did not pay me, I would call all his other suppliers and tell them that he had paid me:).

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