Consistently Late Paying Customer

[Plumb Spares Direct]

where do you draw the line with a customer who needs several calls and emails every single month before they begrudgingly pay their bill and make you feel like the villain for chasing?
The problem is that they are our second biggest customer and we make a good profit from them. The downside is that it hits our cash flow hard and the knock on effect is us paying our suppliers late which give some us a bad name. We have stated that if we’re not paid by the 10th, we stop supply until payment is made which hasn’t gone down well and it strains the relationship. The other problem is that their average debt is £50K and would hit us hard if they walked away and strung out paying the outstanding balance. What do we do?

 

[Mr D]

Set them a lower credit limit?
Tell them their business is not welcome?
Take it on the chin and run risks?
Investigate whether they are having financial troubles?
Do a personal visit and sit down with the boss and hash this out one to one?

 

[fisicx]

Go find another customer and tell this one to go elsewhere.

Or ask for money upfront. Why they complain tell them it’s because they don’t pay their bills.

Or use Factoring Talk to @Ian J

 

[Ray272]

Tricky situation as it sounds like you are heavily reliant on that client.

Maybe you need to go and find 5-10 new clients who tow the line and make up that clients spend and then handle the matter from a better position.

 

[Chris Ashdown]

Look at it this way, if they go bust how will you feel loosing £50,000 in one week

Ask their accounts department what they need to make payments on time, it may just be a case of internal checking that is taking the time and missing payment runs

For that amount I would go and talk it over with the buyer and the accounts team at their premises and see if you can reach a agreement, but 50k is a lot of money for one customer as you are not a bank, I am supprised you ever gave them this much credit

 

[BustersDogs]

I don't have clients that big, but if they're consistently late, they're out. Because eventually they'll do something that costs you even more money than chasing their late bill every month.

As Chris says, ask them what they need from you to pay their bills on time. I've changed some of my clients way of booking services which has fixed the problem, or I've phrased my offers of alternatives in an unfavourable way so they're encouraged to want to pay on time to keep the service the way they want it. If that doesn't work then they go. It's not fair to all my clients who pay on time to keep spending money chasing one who doesn't. Because in the end, all my customers have to share the expenses of running my business, so that one person is costing everyone money!

 

[David Ross Digital]

Yeah I would have an honest conversation with them about why they are not making payments within the agreed terms and figure out where you go from there.

If nothing can be done to get them paying on time, all you can do is figure out under what conditions it is worth retaining them as a customer, and how you balance the risk caused by their late payments against the risk of losing their business completely.

I know a few people that have had some success using gocardless.com or something similar to setup direct debits for customers who were consistently late payers. I think they sold it on the merit of making it easier for the client to pay.

 

[The Byre]

Offer them a 5% discount for settlement with order and 5% added after 30 days. If they decline to settle with order (i.e. payment in advance) wrap up warm and get ready for them to fail!

 

[Ray272]

Just on the matter of factoring.

Used to use HSBC IF but was far from impressed. Cost of court action to chase debt etc in UK was £500 and 2.5 times that for a EU entity. So £2500 to chase a debt in selected EU primary countries.

Is that just HSBC or is factoring on par with those costs if a client does not pay?

 

[fisicx]

That's just HSBC.

 

[Chris Ashdown]

Big problem is that Factoring does not accept responsibility if the company goes but it falls on you to pay back to the factoring company the lost money in this case 50K

 

[Ian J]

Big problem is that Factoring does not accept responsibility if the company goes but it falls on you to pay back to the factoring company the lost money in this case 50K

Not necessarily as what you are describing is recourse factoring. Credit insurance cover is available if required

 

[Chris Ashdown]

That's true Ian but also may well set a lower limit on amount that you need cover for

 

[Paul Norman]

These people are either paying late because they are skint, or because they are lacking in ethics.

You need to know which it is.

If it is number one, you are taking an immense risk. One day, they will fail, and you will need to have anticipated how that would impact you.

If it is number two, then you have a simple choice. Tell them to take a hike, or work out with them a solution that is acceptable to you.

In the meantime, work on building your business based on other customers.

 

[Ian J]

These people are either paying late because they are skint, or because they are lacking in ethics.

It depends on what the OP's customer does for a living as it's possible that the products are used on site where they don't get paid for a while causing problems with their own cash flow.

If the OP is talking about them not paying monthly account plus 10 days then that's probably pretty standard in the construction industry

 

[GraemeL]

We have stated that if we’re not paid by the 10th, we stop supply until payment is made

Been there.
Found best solution was to call them before payment was due and ask if there is any reason they will not pay in full.