We all know that working capital – or paying customers – is the lifeblood of any company. So the last thing you need is a client that doesn't pay you. I am in agreement. However, if done responsibly there are ways to retain customers, grow your business, and attract market share that will position you in a great spot when the recession ends.
If you are like I am, you've been told to be cautious about extending credit to customers during this recession. Heck, some of our best historical clients have had trouble paying this last year on time, but we're sticking with them because they gave us a chance in the first place and are generally good people.
Here are three ideas to keep your current customers, attract new ones using more liberal credit policies, all the while maintaining a healthy bottom line.
- Keep Your Best Customers Happy – For your best paying / best pricing customers consider offering a discount to help them out during the recession. If you do this proactively there is a good chance that you minimize the risk of the customer price shopping on you.
- Keep Your 'Okay' Customers Paying – Most of our clients have experienced some type of hardship during the recession. This has meant slow payments, not only to us but to their primary vendors. Consider entering into binding note agreements for your past due invoices (e.g. term out a note for a few years) which will allow them to keep ordering, and will allow you to keep the customer. Monitor the note carefully (consider collateralizing it somehow) and stop work when note payments aren't received. This is often an effective strategy to help your customer dig out of a hole and also get you paid – although not as timely as you'd like.
- Get New Customers Using Credit – If you already have fixed costs (e.g. employees, rent) then do you really lose anything if you have idle capacity available? Even if you assume a higher default rate amongst risky customers if you can make a slight GROSS profit (e.g. sales less direct costs) you are contributing directly to the bottom line because YOU ALREADY HAVE THE FIXED COSTS. I'm not advocating discounting too much here as you don't want to set too much of a precedent, however the customers that DO PAY will end up being tremendously loyal as you are extending terms that no one else will. Consider the extension of terms in exchange for a partial deposit to cover materials or other direct labor costs in order to better manage your cash flow and risk.
