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Keep Your Customers Paid Up

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Receivables are a major problem for nearly every contractor. It’s not unusual for contractors doing gross sales in the million-dollar range to have anywhere from $100,000 to $200,000 outstanding at any point in time. Of course, it depends on the mix of business. If the company is heavy commercial, the $200,000 range could easily be exceeded since payment, by contract agreement, is often after 30, 60, or 90 days. If the company is primarily residential replacement and service, the number should be well under $100,000 for a million-dollar business.

When times are busy the paperwork often gets left undone. You know the thinking, “Yes, I have been to the seminars and I know I should collect on the job, or at least bill immediately after the completion of the work, but gee, I’m busy. We are behind schedule, the parts are late, and I have three jobs to quote this evening. I will invoice my customers when things slow down a bit.” Nothing wrong with that logic except for one minor detail, things never slow down! So when do we bill? When we are out of money and payroll is coming up, or it’s time to pay our distributor!

My suggestion is to keep your customers current. Keep them paid up, so they have the freedom to continue to buy from you. Let me explain with a hypothetical example. Let’s assume I am a handyman around the house (which I am not). As a handyman, I like to do small projects on weekends. Most of the time I purchase my materials from the same local hardware store. A typical weekly purchase is $30 to $50 worth of materials, and I always pay with cash or credit card.

Now there is a holiday weekend coming up. Wow, three straight days off! That means I can tackle that really big job I been putting off for lack of time. In order to get a jump start, I stop by my local hardware where he bill comes to $200. However, there is a small problem: I don’t have $200 cash on me, and my do-small-jobs-around-the-house credit card is at the house. This is not a major problem since I’ve been buying from this store for a number of years. I know the owner and most of the employees. Bottom line, they allow me to charge the $200 worth of materials.

A week or so later, the bill comes and I put it with the other bills to pay later. My long weekend project drags on and I have not paid my hardware bill. Maybe I was low on funds, or simply just never got around to paying it. Now I need a hammer. What are the odds of my going back to my same hardware store to buy it? Pretty slim since I owe them $200. My fear is that if I go back to that store, the clerk will jump up and holler out, “Mr. Grandy, Mr. Grandy, you owe us $200.” In reality, the clerk probably has no idea who owes them money and who doesn’t, but I don’t want or risk it. So what did I do? I went to another hardware store to buy the hammer I needed. When I went to the other store they might have a better selection, lower prices, or better informed employees. Now I ended up liking the new store better than the old one!

Think about what just happened. I stopped buying from the original hardware store for one reason and one reason only. I owed them money and did not want to risk being embarrassed over my unpaid bill if I were to return to the store. Not being paid up just cost the old hardware store a customer. The best thing you can do for your customer, and yourself, is to keep your customers current, keep them paid up!

Before we wrap this up, let me share one other tidbit with you. Be sure your hours are customer friendly. Make sure you are open when your customers are most likely to want and need you. My wife has been going to a natural food store downtown to buy their honey. The honey was $17.00 a jar, but my wife considered it worth it. Last week we got 12 inches of snow. For those that don’t live in Kentucky, that is a LOT of snow for this area. The day after the storm, the main roads were clear so my wife and I drove down town to buy some overpriced honey. The store was closed, presumably because of the weather. The next day we called, but were greeted with an answering machine telling us to leave a message. The next day my wife was out of honey and needed some to make granola. Since our downtown store was still closed, she went to the organic section of Kroger’s and found organic honey for $12.00 a jar. She got home, sampled the honey and liked it! Bingo, Kroger’s organic honey for $12.00 a jar just replaced the $17.00 a jar honey we had been buying downtown. The store where she wanted to buy the honey was closed, and she was forced to purchase elsewhere and guess what happened? Just like our hardware store example, the end result was a lost customer. Get the point!

Tom Grandy

Posted In: ACCA Now, Management, Money

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