Posts Tagged ‘bad debt expense’

Account Collections – Is It Really So Black & White?

September 9th, 2009 Comments off

                Tomorrow I’ll be heading to the ASR Show down in San Diego where I’ll have a great opportunity to meet up with so many of the accounts that have contributed to our success over the last year. Some of those accounts are smaller one and two shop location that have been around for decades, to a few of our larger accounts that are hundreds of doors deep. It’s no surprise that we have been working in a very difficult environment over the last few years and that the level of expertise that can be found amongst the account base can drastically differ. Unfortunately for some, they have found themselves in difficult situations and are having a difficult time digging out.  Our role as a vendor is to support our customer base, which in some cases means more than just on-time shipments or going in and doing a bit of remerchandising.

                Some accounts have found themselves getting behind in their payables, have purchased the wrong or excessive amounts of inventory, or have not made the necessary adjustments in their operating expenses to weather the current climate. For me, when I find myself confronted with a problem account that may be 90/120+ days, that’s when I start getting the heartburn. When we actually have to write-off that account or send it to collections….we’ve lost that particular game. I don’t like to lose. First, it’s an expense that I don’t want to incur. Second, it means that we didn’t appropriately do our job in monitoring that account, or if we did, we were hopefully able to mitigate the risk. However, third and more importantly, it typically means that we’ve lost another participant in our industry, which is one of the sadder elements. It means that someone has potentially lost years that they have invested in building that business.

                If the latter is the case, then hopefully we have done everything we can to help that account through a difficult period, without being taken advantage of ourselves.  In working with such an account, there are a multitude of considerations, which might include:

§  Is your account carrying an inventory level that is aligned with their payable or have they used your product to fund other portions of their operation or pay other vendors?

§  What is their current sales performance and outlook against prior periods?

§  Does the current outlook support the workout plan that is being considered?

§  Do you have a workout plan that is addressing the balance in a reasonable amount of time?

§  Does the plan take into consideration the continued supply of product without increasing the exposure of risk to the company?

§  Does your account have credibility in place based on prior commitments or have they failed to follow through.

                The easy way out is to send the account to collections, but that will likely result in a stalemate on the outstanding balance, not to mention create an irreversible level of ill will. We know the cost to acquire new customers…and the cost is high. What is the cost to the company if you show a little flexibility and put in place a workout plan that will allow that account to make it through the difficult period? Perhaps during this period your customer can better align their inventories and return to a stronger position where they can then give you the support that they had offered in the past. The cost is very little and the return that you will receive on that investment is much higher than playing an unnecessary game of hardball.

Thanks for reading . . . .

Jeffrey Ishmael