Talking to a lumber guy about three years ago…Recession about over and seeing a bit of light at the end of the tunnel. He said, "Hey, I finally figured out how to make a small fortune in the lumber business... (Pause!) You start with a big one"!! Old Joke and kind of a sick one. Many of us have "lived through it" and even though it's better nowadays, the "scars" are still there. We don’t have a big fortune to back us up, so what do we have?
Brought into focus, one of the biggest and most important facets of our business would be our "Accounts Receivable"...All that money we "loan" folks when they buy our material, and (hopefully) pay us forty days or so later. In our case, and now that things have grown back at a fairly rapid pace, several million dollars are "floating" out there at all times. Collecting that money, and “turning” that money is no different than our management of inventory. But it is also an emotional and very fluid part of our business. If we're doing our job properly...you know, competitive pricing, tons of service, involved in "community" activities together, etc., then the collection of that money, (our Life Blood) can be sensitive and frankly not easy.
One of the things we learned quickly, as the economy was sliding down, was that some of those "Draws" those builders were getting were actually paying for a job four jobs back, or even much worse in some cases. So good old "Joe" whom you've known for many years, been through thick and thin with, is suddenly telling you he "Can't pay you right now, but 30 days from now, there will be enough draw money, and he'll catch you up.”...But when you tell him you really need your money, he gets kinda huffy and in no uncertain terms lets you know that if you start "forcing" him to pay, you'll greatly hurt him, (He'll quickly remind you that those small subs "Have to be paid every Friday") and very likely put him/her out of business. So, worst case, you go along with him/her, and six weeks down the road, he not only hasn't "caught up," but those scary owed numbers are even worse.
What we had to do in our case, was realize the emotion element had to come out of this situation. After a few broken promises (Got to remember, their primary goal at this point might just be raw Survival, so all bets are off!) you act. We put most of these builders on "Zero Leeway"...Meaning, whatever was due by the 10th of the following month was due...Period. If they couldn't pay, they were immediately put on "Credit Hold"...And beyond that, if they didn't make at least a decent "good faith" payment, we started liening jobs. But they're clever too...No really! They'd get the picture, start buying from some competitor, because there's always someone out there that will open up a "new" account. And when they got that draw, they'd pay us...not their new supplier. Of course the "game" can go on only so long. Eventually, they'd either figure out the right way to survive and continue on, or they'd be permanently gone! With a lot of builders, we set a new "Norm"...Got to pay for job "A" with "A" draws, or it aint going to work.
So, now times are better: Builders have good, profitable contracts and are making money, so our policy has eased up...Hey! Cut them some slack...they "survived" already...Wrong!!! This is one protocol that we have kept solidly in place. Everyone...builders, suppliers, banks, all of us…understand the need to adhere to the "New Norm." We will continue this policy as far as the eye can see. Since we are (and will continue to be) their “Bank"...we decided the best management practice was to act just like one…Being “Tough” and surviving is not a bad feeling at all! Good luck on your collections.