Know When To Hold 'em

When should you put an account on hold?

Nothing seems to ignite the sale rep’s ire more than restricting orders to the customers. Yet at some point when the customer is not making payments it is time to say, “No more.” And I do not mean, putting the account on C.O.D. No more orders means no more orders, period.

I’ve seen on some company’s credit applications and invoices a statement along the lines of, failure to pay or extended delinquency may require the creditor to place the account on C.O.D. until it is brought current. I don’t believe the customer should be given this option automatically.

Presumably, continuous buyers need your products. A framing contractor is dependent on his lumber suppliers. Glaziers need glass. Concrete contractors need a steady supply of ready mix. When they fail to pay and their credit privilege is taken away but they are still allowed to purchase albeit with cash on delivery, they still do not have any incentive to pay down the past due amount. However, when you put them on hold and refuse to sell them anything, the debtor has to make some decisions. Yes, he could go somewhere else; however, he could always do that when placed on C.O.D. Or, he could work something out with the creditor. And that’s the whole idea behind putting the customer on hold.

Putting the customer on C.O.D. allows the customer to call the shots. He can continue to place orders and receive orders, but now he has to pay for them upon deliver, with the money he was going to use to pay down the account. That doesn’t get anybody anywhere does it? I’ve seen some credit managers then, apply the C.O.D. money, not to the intended cash sale, but to the oldest outstanding invoice. That’s about the dumbest thing anyone can do. It does nothing to decrease the over all indebtedness, though it may in the very short term decrease the delinquency. However, after awhile, you have the same balance as you started with, aged out as before only now it is made up of C.O.D. invoices. Try taking those before a judge as evidence of non payment. “Yes Your Honor, they are C.O.D. invoices, and yes we did get paid, but we applied the money somewhere else.”

I’ve seen schemes like “C.O.D. plus”. Here the customer is supposed to pay something over and above the amount of the C.O.D. invoice. While it may be previously established, usually, whoever is receiving the goods is going to pay only what it says on the invoices. When you try to increase the amount, you get into a real accounting nightmare. And, the customer still makes the decision when to order and when to buy and how much if anything he’ll pay toward the delinquency.

My advice is: put the account on hold. No more orders until there is either payment of the delinquent amount or a mutually acceptable payment schedule whereby payments are made separately and independent of any C.O.D. orders. Most of the time, the customers will go along with this kind of program, contrary to the beliefs of most sales reps.

They go along with it because; you are working with them to solve a temporary problem. You are not just shutting them off by making the do something they may not be able to do, pay on delivery. They may also go along with it when they are warned in advance. You let them know that you believed them when they made a promise to pay and you continued to release orders based on their promise. However, now that they’ve broken that promise, they are not credible and you must restrict further orders until they make amends. If the sales people have done their job and made the products indispensible, the customer will come to the table with a reasonable plan. If the customer isn’t interested, or unable to work out a payment plan then putting him on hold has frozen the balance. There’s no waiting for the C.O.D. checks to bounce.

There is no reason, therefore, to wait ninety days to finally stop the flow. As soon as a customer has broken his own commitment, lower the boom. They get the message. You are serious and you are not going to let them take advantage of you. Believe me, it works.

You need help in implementing good solid controls? You need some help training the collectors in what to say and when to say it? Contact us at Strategic Credit Management Solutions at http://powerscredit.com/. Or e-mail patrickpowers@sbcglobal.net.

Your comments are welcome.