Page 29 - How To Avoid Going Bust In Business

A business can crash because it is too successful. The orders pour in. You need
more supplies, more machinery, more people. They all cost cash before you get the
widgets finished and shipped. Even then the money can be slow in arriving, while
the bills are not. If you are short of working capital – what business isn’t – an
explosion of success can be terminal.

That said, I have always found dealing with the problems over over-demand a lot
more fun than the problems of under-demand.

Take a hard look at your debtor’s ledger. Get on the phone and chase the money.
Don’t let your customers use you as a bank.

I remember a sign in a pub that I frequented in my younger, more foolish, days.

“We have an arrangement with the bank. They won’t sell beer and we won’t
advance credit”.

Beware of large volume buyers who want to screw you down on credit lines. It’s all
very nice making big sales but only if you can afford to carry the financial
overburden until their payment arrives. Those sales are also usually low-margin.
That’s how big companies operate – they can demand better prices and longer
credit lines. Ask yourself, if, at this stage in the business, that’s a good strategy.

Dealing with slow-paying customers is a most delicate business. On the one hand
you don’t want to irritate them to the point that they stop buying. On the other,
there’s not a lot of point in making a sale unless you are paid for it.

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If your agreed terms of trade are 20 of the month and it’s now early days in the
following month you should have no hesitation in calling your debtors and asking if
there is a problem. Be up front about the fact that you need to get your cash in
because you have bills to pay.

You don’t need to get heavy-handed. Make it a friendly-but-professional chat. One
of the advantages of a phone call is it can help you judge the situation. It might, for
instance, set off alarm bells about their ability to pay now or at any time in the future.

If they can’t pay all the outstanding amount, ask for a part payment.

On the other hand, you may need to get assertive with slow-paying customers.

A friend of mine owned a joinery business. He had made and installed a very
impressive set of double doors at the front of a substantial mansion in an exclusive
part of the city. But he hadn’t been paid in several months. He arrived at the front
door of the house and announced to the owner that he had come to take the doors
back. The homeowner, an arrogant so-and-so, laughed at him and said “How are
you going to that?” With that, my friend produced a chain saw and started it! The
owner scrambled the money together and settled the debt.