© Michael Brown | stock.adobe.com

Credit and Collections:
New and Better Choices

Something has changed. It may be the effect of social media, or better banking regulations and procedures, or a deeper concern for business reputations. Whatever the impetus, manufacturers’ representatives like us now have better
options than slow-pay, no-pay or sue.

Every company occasionally confronts a client who doesn’t pay on time, refuses to pay altogether, or can’t pay the full amount for goods that have been manufactured and delivered. Like many of you, I’ve had clients take advantage of me as I struggled to build my business. Fortunately each bad episode always provided me with some small lesson that I could use to better protect myself in the future.

Now, after 30 years, growing from a one-man operation to a thriving business with 10 reps, grossing in the high seven figures annually, I’ve amassed a small compendium of proven tactics that serve me well when I encounter a credit or collection problem. Mostly, I no longer ponder whether to sue or not to sue. I no longer allow myself to settle on the least bad option. And now, neither should you!

Business Examples

Without naming names, here are some examples of my education in credit and collections.

Early in my career, every order and every client was important. My first major conflict was with a client who owed us about $11,000. Cash was tight and he was trying to squeeze me. He demanded a discount but upped the ante each time I made an offer, so I decided to sue. An hour before court my lawyer was caught in an emergency and couldn’t show up. I’m sitting there with a pile of disorganized papers and no counsel. My client arrives with a lawyer who is so impressive I’m convinced it’s over. But the judge rules in my favor. A judgment is issued and the client paid the entire sum the next day.

Lesson learned: Stick to your principles. Don’t be intimidated if you’re in the right. Fate provided a fair judge.

An account owed us about $10,000, but we were getting barely $1,000 annually to pay down the balance. I found a way to apply parts of the Uniform Commercial Codes (UCC) into our agreement. This meant our debt was listed on their credit reports, which allowed us to jump ahead of all unsecured creditors. One day the client called, frantically requesting removal of the UCC provision. He had an opportunity with a huge account — if the code provision was removed. We set up an agreement: He had one year to pay in full, missed payments meant default, plus he paid all legal costs.

Lesson Learned: Anticipate issues and take precautionary steps with new accounts.

A new client sent us an order worth $80,000. I demanded payment up front. They paid using an American Express credit card, which was fine with me, but it made me extra cautious. My sixth sense made me specify that this was a “custom order.” A month later he demanded his money back claiming that he was able to get a better price from another resource. Problem was, I had already used the funds to purchase the material. Initially, Amex wanted to return the funds to him, but subsequently reversed itself in my favor when I presented the documentation.

Lesson learned: Read the small print on credit card agreements.

Producing custom samples is a vital part of the sales development process. It’s costly and time-consuming. It’s also the basis for theft of industrial property. And some clients continue to take advantage of reps hungry for new business. A new client promising big orders made countless requests for custom samples, but no orders materialized. Subsequently we discovered that our samples were being shopped with our competitors. Armed with a sample of the finished product based on our original sample, we sued the company in small claims court. We recouped all of our out-of-pocket development costs plus some legal fees.

Lesson learned: Stick to your principles even on small things.

From personal experience I’ve discovered credit and collection problems fall into three categories: customers who constantly pay slowly caused by too many payments due concurrently; customers who normally pay on time but can’t because of some usual financial issue; and finally, customers who consistently attempt to avoid paying. With patience and experience, the first two customers can easily remain good clients in the long run. The last example begs the question how badly do you want the business?

Hey, nobody knows everything. Let’s exchange ideas on the issues common to us all. Always happy to hear from fellow manufacturers’ reps.

MANA welcomes your comments on this article. Write to us at [email protected].