I have struggled for several years with how to deal with some customers who refuse to pay or ignore finance charges that are piling up on their account. I don’t really have a procedure in place, so I manage on a case-by-case basis. I don’t necessarily want to stand up to the law and alienate my clients, but I don’t want them to take advantage of me either. Do you have recommended procedures on how to handle these situations? I appreciate your advice and any suggestions you may have that will help me be more consistent with this issue.
– Finance Fun in San Francisco
Dear Finance Fun,
“Where I’m from, we don’t shoot horses when they get annoying; we tame them. This quote is taken from the character of John Wayne in the 1932 movie “Ride Him, Cowboy”. The plot of the film is that the character of John will save a horse on trial for murder by taming it. Now, I like some John Wayne westerns, but seriously, a horse on trial for murder? Everyone knows it’s always the rider’s fault.
The message, however, works for us in this situation. “We don’t send letters to customers they’ll ignore when they get annoying; we educate them. A little patience goes a long way. I have always viewed finance charges as a tool that can be used to have a chance to have a conversation with my client.
I love the phrase “We don’t pay a service charge”. Well, you also don’t pay your account on time, that’s how you got the finance charge, so what exactly do you do? By the way, most people don’t find my prickly wit funny when it’s used on them.
If these are the same chronic customers on your list (and from your email, I’m guessing they are), take a global look at the account. Leverage your sales reps’ knowledge on the account. How does this client do business? What business segments do they work with? Are they based on contract, government, owner? What types of projects make up their work?
The information you discover may tell you that the account has been configured to fail from the beginning. They may have projects that pay in 45-60 days and will NEVER be able to do a 30 day term.
Once you have a little insight, call the person responsible for accounts payable or the owner. Ask them categorically what is preventing them from paying on time. Do they need to create employment accounts? Are they all billed by AIA, so it blocks them? Nothing can replace a direct conversation with your client to find a way to set up the account for success in the future.
If they do not respond or if they respond but rather like the classic “We do not pay service fees”, then you have several choices:
- What is the value of this customer? It may be a business decision to simply waive the fees. Everyone recognizes that they will never pay them, so turn them off, accept it, and get out of the madness.
- Put the account on hold until they pay the finance charge (sounds extreme but really depends on the circumstances. If you have to, you have to).
- Offer a solution to share the cost with them, but to move forward they have to pay this bill on time. You can absorb the costs “once”, but in the future let’s collect our poo as a group and pay it on time.
I’m not a big fan of postal mail, but I do follow up the conversation with an email recap. That way, we both have a history of what happened, and no one has had to straddle someone to do it.
With over 30 years of credit management experience in the LBM industry, Thea Dudley advises companies on a wide range of credit and financial management matters. Contact Théa at firstname.lastname@example.org