Guest commentary: The age-old debate on A/R terms
Are customers’ barks worse than their bites?
Have your underperforming accounts receivable collections left you sitting in a jail of your own making without consistent cash flow?
You’re not alone. Many LBM dealers imprison themselves with lenient A/R policies that let customers go out 90- or 120-plus days, even when the dealer is cash-starved.
Ironically, dealers held captive by constricted cash flow often do not lack sales. Instead, they are missing the solid systems in place to collect — or better yet avoid — A/R that is underperforming and outdated. The corrective action is simple: Institute a credit policy and stick to it. Not only is that the right path for gaining access to cash to fuel your growth, but it comes with a get out of jail free card.
It’s not hard to understand why dealers struggle with prompt payment. First, many dealers have personal relationships with the people who owe them money. Second, and perhaps more commonly, dealers are afraid that tightening A/R terms will send their customers — good and bad — flocking to another dealer who has looser policies. But that’s rarely the case.
Experience shows that when a dealer tightens terms, the customer’s bark is far worse than his or her bite, and customer attrition is unlikely to occur. The fact is, customers know when they are stretching the rules, or when they are a late- or slow-paying customer. Most of them expect to be called on it.
Underlying all of this, the customers whom you want to keep — the ones who pay on time — are more likely to respect you for enforcing terms than to switch to another dealer. They may even be relieved to know that, finally, every customer is playing under the same rules.
The risk of losing a customer is real, but it’s a bigger one in theory than in reality. Allow yourself to consider that you are sitting in a jail of your own making, and you hold the keys to your freedom. Call it “cash flow freedom.” Here are steps to clean up your balance sheet and restore cash flow:
- Shrink the gap between A/R and accounts payable.
- Require customers to clean up all delinquencies.
- Move bad payers to cash on delivery.
- Monitor the credit of marginal customers with services like Experian, Dun & Bradstreet or Cortera. Check them three times a year.
Taking these steps is unlikely to result in customers leaving, but it will almost certainly lead to conversations that have some “bark” to them. That’s good. The customers who bark are most likely the ones who are most chronically slow payers, and this is the opportunity to productively reset the relationship.
Scott Simpson is the president and CEO of BlueTarp Financial, email him at [email protected]
Home Depot honored by EPA
The U.S. Environmental Protection Agency recognized The Home Depot for its eco-friendly freight transportation efforts.
The chain received a 2016 SmartWay Excellence Award for the fourth consecutive year for its contributions to cleaner, healthier air and reducing carbon emissions by hauling all freight with environmentally and energy efficient carriers.
A charter member of the EPA’s SmartWay program, The Home Depot utilizes a number of clean transportation best practices including truckload optimization, greenhouse Gases (GHG) data collecting and reporting, and by requiring that all carriers be current SmartWay partners.
In 2015, The Home Depot shipped 4,000 fewer trucks, helping to avoid 4.132 metric tons of CO2 emissions. The company audits carriers annually to ensure that data is properly submitted to the EPA.
“We’re honored to be recognized by SmartWay, alongside so many companies in our industry who are leading by example with their efforts,” said Michelle Livingstone, VP of transportation at The Home Depot.
House votes to delay overtime pay rule
The House of Representatives has passed a bill that would delay by six months the effective start date of the Department of Labor's (DOL's) new overtime regulations.
The new rule will require employers to pay overtime to salaried workers earning less than $47,500 a year, double the current threshold of $23,660.
Five House Democrats joined 241 Republicans to support moving the rule's effective date from Dec. 1 to June 1.
The White House said that President Barack Obama would veto legislation delaying the rule.
The Republican legislation also faces likely opposition by Senate Democrats who could block it from advancing.
"While this bill seeks to delay implementation, the real goal is clear — delay and then deny overtime pay to workers," the White House said in a statement.
Opponents have also launched a legal challenge to the rule, Reuters reported, with Texas and 20 other states, as well as the U.S. Chamber of Commerce and other business groups, filing separate lawsuits in federal court in Texas last week claiming the U.S. Labor Department abused its authority with its drastic increase of the salary threshold.