Financial: Dealing with Troubled Customers

Financial: Dealing with Troubled Customers

Published November 2016

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The lot of a pressure cleaning business owner is not an easy one because it doesn’t take too many non-paying customers to create trouble; far too often the contractor, dealer, or distributor must be concerned not only with his or her operation’s financial well-being, but also the financial situation of both customers and suppliers.

There are always customers that go out of business without warning or without paying their bills. In these cases, it is often too late to collect anything. However, if the owner or manager of a pressure cleaning business is vigilant about outstanding accounts receivable and the financial status of all customers, many losses may be averted. There are also strategies for dealing with really troubled customers before the dreaded final step of “firing” them.

Recognizing Troubled Customers

It’s far easier to take a proactive approach by avoiding the types of clients who usually spell trouble, staying alert to signs that long-time customers are having financial problems, and taking quick action when their payments are slowing down. In other words, exposure to a customer’s credit troubles can be minimized before credit is extended as well as during the course of the business relationship.

Anyone building a business or in need of revenue may be tempted to take on every customer. Unfortunately, that can be a mistake that all too often leads to collection problems later. The solution: Vet customers carefully.

Although credit checks are important, they’re not failsafe. Things can go south quickly, so minimizing exposure to a customer or potential customer’s credit troubles requires every pressure cleaning business owner or manager to exercise “due diligence.” In other words, minimize exposure to the credit trouble of others in the beginning and at every step of the relationship.

That can be as basic as paying attention to the comments of customers or potential customers whenever money is discussed. When a customer, for instance, begins negotiations by offering half of a proposed fee, it is not a good sign. Perhaps the customer or potential customer cannot afford the products or service, its quality, or the timing of the service.

Due diligence also means staying on top of paperwork. It is all too easy to fall behind on invoicing in the midst of big projects, but letting it slide for a month or two will put the waterjetting business at risk. Before you know it, a customer owes $5,000, $10,000, or more. To avoid this problem, establish regular routines for billing customers that reflect their preferences. Sending an invoice every two weeks might be a good strategy. With this system, if customers begin taking longer than usual to pay, it is readily noticeable.

Staying alert for signs that a customer’s financial situation may be changing can also protect the business. If, for example, a customer ignores or doesn’t return phone calls, it may mean nothing. However, if three or four calls have been ignored and the last payment was late, it could mean the customer can’t afford the service or can’t afford to pay the bill but hasn’t told you.

Staying alert for signs that customers’ financial situations are changing can protect any business. Various indications of possible trouble include the following:

• Requests for price changes with or without changes in the number, frequency, or types of services performed. A customer who doesn’t understand the true value of the work performed is often reluctant to pay in full, even if not in financial trouble, so these should be screened out from the beginning.
• Negative publicity or press, especially delinquent tax notices.
• Rumors, particularly those involving slow payments to others, sudden large payments to insiders, or poor cash management.
• Deteriorating market position relative to the customer’s competitors.
• Employment of various types of consultants.
• Lack of focus by management or response to requests.

When Payments Lag

A number of strategies should immediately kick in whenever financial troubles appear imminent:

• Cashing checks promptly and keeping records of when checks are received.
• Conditioning future business on payment for the new services or goods and some reduction in the past due amounts. Payments that are “contemporaneous exchanges”  are immune from preference challenge by a bankruptcy trustee.
• Without evidence that payments were for the new goods or services, rather than the old balance, courts tend to apply payment to the oldest charges, exposing the payment to recapture.
• Selling C.O.D. is excellent protection against greedy bankruptcy trustees.
• Protect any lien rights the pressure cleaning business may have.
• Don’t let the threat of a customer filing for bankruptcy deter a law- suit if the debtor is believed to have assets from which the claim can be satisfied.
• Talk to a collections attorney about your rights to a pre-judgment attachment.
• Don’t hesitate to accept payment on account because of the possibility that the payment may be refundable as a “preference” if the customer files bankruptcy. It is not wrong to accept money genuinely owed to the pressure cleaning business; neither is it wrong of the soon-to-be-debtor to pay it. It simply may be recoverable by a trustee.

Remember the old saw about possession being nine/tenths of the law? Possession of the funds may not be forever, but it does give a debtor/business negotiating leverage in negotiations in a bankruptcy case to avoid the transfer.

Fighting the Good Fight

Most pressure cleaning business owners and managers are aware that contracts and payment terms should always be in writing. Unfortunately, this alone may not protect the business if a customer runs into financial problems. Few troubled customers are likely to begin paying simply because there is a contract.

Depending on one or two customers can put any pressure cleaning business at risk if payments from one of them slows or dries up. Even a business whose plate is full might be well advised to continually look for new customers. When there is a constant inflow of customers, if one fails and isn’t able to pay on time, potential problems are avoided. It also provides more time—and a financial cushion—to work things out with a troubled customer.

Turning Bad Into Profitable

The first step to turning troubled customers into valuable assets means determining whether the relationship is worth saving. A pressure cleaning business owner or manager who believes in holding onto every customer, no matter what the cost, may never see his business reach its maximum earning potential.

Before asking any customer to take his business elsewhere, efforts should be made at “reforming” the customer. There is no clear rule of thumb, as each situation—and each customer—is different. If the problem is one of slow pay with a smaller customer, services can often be postponed or delivered on a C.O.D. basis until they’ve paid up.

The same approach may work for larger customers if the pressure cleaning business has enough leverage. Alternatively, a price increase to offset the higher cost of extending credit might be called for.

Worried about the customer going elsewhere? Sometimes that’s a good thing. Troubled or problem customers become problems for competitors.

Slashing Unprofitable Customers

Often ignored by many pressure cleaning business owners or managers is whether the best business decision may actually involve firing some of their worst customers. While this may seem like an illogical suggestion (particularly in a bad economy), having the wrong customers can be costing the business in unexpected ways and holding it back from real success with the temptation of short term profits.

The Joys of Business

Owning a business can be a lot of fun, but there’s one aspect that no business owner likes: trying to collect from customers who have run short of money. Unfortunately, wringing money out of deadbeat customers has become a common issue in today’s slow-growing economy.

In some cases, the only option may be hiring a collection agency or going to court to collect, although few small business owners like going this route. While losing crucial customers can be worrisome, it should be kept in mind that some customers are just really not worth it. Instead of tying the business to customers that are providing little income with much heartache, it’s often best to work on and please customers that actually generate the most profit.

Diligent business owners may be able to minimize their risk and bad debt by paying attention to a customer’s payment habits, and its standing in the trade, and potentially anticipating a customer filing for bankruptcy. Monitoring customers’ financial indicators can significantly reduce any pressure cleaning business’s financial headaches and contribute to a healthier bottom-line. After all, to stay in business means dealing with all customers, warts and all.