becoming a bank (and not by choice)

Status
Not open for further replies.
R

rodneee

Senior Member
i am sure, like me, many out there offer 30 day terms for payment....that says that in a perfect world your accts rec would always be 8.3% of sales... we never got it that low but over years we would seem to make out ok carrying 11 to 12% in money owed....that percentage seems to just keep rising...after 3rd quarter (ended yesterday) i am carrying 19.3% in monies on the street...thus becoming the "BANK" for my customers...do my percentages seem out of line or is it the bad times that have befallen all of us...or am i just whining considering bad debt has always hovered around zero????
 
Ahead of the ball.

Ahead of the ball.

When that happens to me I find there is one or two clients that are in bad shape and I'm about to get stiffed.
Take a credit card number to qualify your customers. That means they are holding the bag when the bottom breaks out not you. Good customers have credit cards. If they don't, you don't need them unless you get collateral, like their house or if a business, a personal guarantee from the manager or owner ie their house. Keep these on file, notorized.
Get ahead of the ball not behind. It's bidiness. WWGD .. What Would Guido Do

If the money is cheaper to pay than not they will pay. Increase your interest rates and or set a qualifying charge/deposit on jobs.

If someone gave me $1000 to hold for 30 days I'm there!
 
No, your understanding of things is spot-on.

Many companies, as a matter of deliberate choice, hold back on paying their bills. For example, one major "low price" retailer has a corporate policy of not acting on an invoice for 90 days - which means you won't see payment for 100-115 days. (I wonder how they would respond if I waltzed out their store with a cartload of goods, promising to pay them in three or four months?)

All you can do is build it into your price- at pawn shop rates. Assume 90 days and tack on 36%.

I advise against offering any manner of discount, or adding any sort of penalty, as this will only result in your getting a check for the smaller amount ... and having to argue. These guys know exactly what they're doing.
 
I would not get real worried about it. It's something going on with everyone, and it's just the way things are these days.

I second the CC idea especially for small jobs. Get the number before you go and charge them for the minimum service call charge to make sure the CC is good before you even send someone out on new customers if it makes you feel any better.

Most businesses in good standing with their banks these days are paying about 10% on money they borrow from the bank to operate their businesses. So add 3% to the job cost to cover the money you are lending out. That would cover you for 3 months, or the CC fees.

I am not saying this is a good idea or not, because you may not be able in practice to actually get any extra money by raising your prices. But at least you will have a better idea of the actual cost of the job.

Where I used to work, this was always figured in the job costing, even if eventually we took the job with little or no margin.
 
renosteinke said:
Many companies, as a matter of deliberate choice, hold back on paying their bills. For example, one major "low price" retailer has a corporate policy of not acting on an invoice for 90 days - which means you won't see payment for 100-115 days. (I wonder how they would respond if I waltzed out their store with a cartload of goods, promising to pay them in three or four months?)
Click to expand...

And the contractors and other suppliers know this and most are quite happy with it. It's a pretty safe bet they will eventually get paid and the amount of work and the steady nature of it often makes it more than worth their while.

You need to remember that the cost of getting a new customer is often horrendously expensive. Keeping a solvent and reliable customer is like having a gold mine. Admittedly it is a gold mine that does not produce all that much gold, but it produces it reliably, and that is something that cannot be said for people sitting at home waiting for the phone to ring while not getting any gold at all.
 
markstg said:
I thought the 2% discount if paid within 5 days was a carrot to give incentive to pay the bill.
Click to expand...

I have seen 2% ten. I can't say I ever heard of 2% five. Maybe a regional thing.

The idea is to give a discount for prompt payment.

What often happens is the discount is taken but the prompt payment part of the deal is neglected.

It's like trying to charge interest on late payments. It sounds good in theory but often does not have any real effect on the bill payment process. The slow payers know you are not going to go after them for a few dollars in late payment fees.
 
petersonra said:
I have seen 2% ten. I can't say I ever heard of 2% five. Maybe a regional thing.

The idea is to give a discount for prompt payment.

What often happens is the discount is taken but the prompt payment part of the deal is neglected.

It's like trying to charge interest on late payments. It sounds good in theory but often does not have any real effect on the bill payment process. The slow payers know you are not going to go after them for a few dollars in late payment fees.
Click to expand...

My electric bill says pay $100 by X date. If paid after X date pay $110. If the check for $100 reaches the utility after the X date, my next months bill show my monthly cost say $120 + $10 the penalty amount from not paying my previous bill "on time". Eventually if I don't pay up, I would think I would have to part with my meter.

You guys have it tough.
 
markstg said:
My electric bill says pay $100 by X date. If paid after X date pay $110. If the check for $100 reaches the utility after the X date, my next months bill show my monthly cost say $120 + $10 the penalty amount from not paying my previous bill "on time". Eventually if I don't pay up, I would think I would have to part with my meter.

You guys have it tough.
Click to expand...

The rules the utilities operate under are sanctioned directly by state law. They also have more options to enforce payment because they have a monopoly that the average business does not have.

Contractors are pretty much on their own in trying to enforce payment, and there are plenty of other contractors out there looking for work.
 
C.o.d.

C.o.d.

Has anyone ever considered running their business C.O.D.?

Paying your bills by the 10th and getting the 2%

Cash, check, credit card or consumer financing.
 
rodneee said:
i am sure, like me, many out there offer 30 day terms for payment....that says that in a perfect world your accts rec would always be 8.3% of sales... we never got it that low but over years we would seem to make out ok carrying 11 to 12% in money owed....that percentage seems to just keep rising...after 3rd quarter (ended yesterday) i am carrying 19.3% in monies on the street...thus becoming the "BANK" for my customers...do my percentages seem out of line or is it the bad times that have befallen all of us...or am i just whining considering bad debt has always hovered around zero????
Click to expand...

Not enough information given here.
It really depends on the customer.
For me, Residential Customers pay upon completion.
Commercial customers will let you know how they operate. Some will pay on completion, and its worth the extra time to sit while they issue a check. Other will float you out as long as YOU allow them too.

I learned a tip from my Promotional products supplier, this is the guy I get my stickers & t shirts from. Heres what they do, Monday I get an invoice for my T-shirts and on Friday I get a past due Statement. I asked him why so fast, and he apologizes for his credit department, for the fast "past Due" statement. But then he admits he's aware of it and it speeds up his payments.
So I tried it, and it does work.
Just like on your utility bills you have to mark a payment by date and follow up with timely past due notices.
 
flyboy said:
Has anyone ever considered running their business C.O.D.?

Paying your bills by the 10th and getting the 2%

Cash, check, credit card or consumer financing.
Click to expand...


Another capital idea....Flyboy's concept is how I would operate these days if I still had by business open. I used to run open accounts for my larger volume/commercial/repeat customers, but when someone asked for credit, I would have them C.O.D.the first time, then make them fill out a credit app. That will separate the men from the boys...And if you slipped, then it's back to C.O.D.
 
I am almost 100% C.O.D.

Occasionally I have a customer who gives me enough work that if I don't catch up with him until the end of the week, that's OK with me.

And once I had a customer who took a few bids but needed somebody who could take a lump sum payment up front and then a few smaller payments once a month . She told me my price was higher than everybody else's but I was the only one who would let her stretch out the payment a bit.

It worked out well, she paid me $2000 around the time I did the work, then I got a check for $400 for each of the next 3 months. It was kind of nice just getting a check in the mail even though I hadn't done any work that week.
 
rodneee said:
i am sure, like me, many out there offer 30 day terms for payment....that says that in a perfect world your accts rec would always be 8.3% of sales... we never got it that low but over years we would seem to make out ok carrying 11 to 12% in money owed....that percentage seems to just keep rising...after 3rd quarter (ended yesterday) i am carrying 19.3% in monies on the street...thus becoming the "BANK" for my customers...do my percentages seem out of line or is it the bad times that have befallen all of us...or am i just whining considering bad debt has always hovered around zero????
Click to expand...

Becoming a bank is not such a bad idea. If customers know that you will do work for them and they do not have to pay immediately they will hire you. Someone is going to loan them the money for the remodel why not you. This is a good opportunity to increase your bottom line. Banking is morally superior to Collectivism.
 
Ravenvalor said:
Someone is going to loan them the money for the remodel why not you. This is a good opportunity to increase your bottom line.
Click to expand...

And the someone that loans them the money will also make sure they are credit worthy and have them sign an installment contract that is secured by their home, assume a bad loan and you may change your bottom line right down to the bottom.
 
Status
Not open for further replies.
Top