A Sale Is Not A Sale Until You Collect The Cash
We stopped trading with a long standing customer this month. The relationship had broken down and they decided to take their business elsewhere.
The relationship broke down due to our intransigence about one small issue.
Their inability to pay to terms.
About six months ago we imposed some very onerous terms on them because they continually failed to pay.
I was summoned to meet them.
"We need longer terms" They said.
"I am not going to relax my position unless you can show me some some accounts" I replied.
We had been unable to lay our hands on any numbers published in the last two years and were getting nervous. We knew they had problems and had shut plants and shed jobs.
It became clear that their auditors had declined to sign off the last two sets of accounts until a written undertaking was received from their North American owner confirming that they would continue to underwrite the company's losses. Without this the company was insolvent.
Which of course filled me with confidence. I declined to alter our position.
Their purchasing manager attempted an aggressive last ditch attempt to change my mind which ran along the lines of:
"We are a bigger company than you and other people give us credit."
Size in business is subjective. Which company is bigger? The small solvent guys who make a modest profit or the big failing insolvent dinosaur propped up only by cash injections from afar that will stop suddenly and finally the moment the provider finds its home market looking chilly?
Now OK, in this instance this customer was not big enough to cause me concern at their departure (1.5% of turnover) but the principle would be the same no matter what the size of the hole in the top line.
A sale is not a sale until you collect the cash so keep your risk where you can see it and be ready for the consequences.
3 comments:
Clive,
My partner and I started a business in 1992 with no money, but a credit line from the father of my partner and an advance of $50,000. Since the father put up the money he also felt free to give business advice and we felt compelled to follow it. This was a good thing. One of his best had to do with paying our bills. He said, "Pay each bill before it is due. One day your supplier will have a limited supply of product. He will most likely sell to the customer he can depend will pay him promptly." That has been an excellent policy and on at least two occasions we got product because of our pay record.
You write very well.
Thank you Runa, kind of you to drop by.
Clive
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