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Tough Call: The special order dilemma

Builders aren’t required to prepay for special orders, but now you’ve been burned twice—because their homeowner clients had a change of heart. What would you do?

AS THE SECOND-GENERATION owner of an established lumberyard, you’ve either witnessed or experienced many of the tough situations that trip up less experienced operators. That’s why you have systems in place to minimize shrinkage (by customers and team members). That’s why you have a savvy credit manager whom you’ve empowered to make the tough decisions. And that’s why you require 100% payment upfront from homeowners who place special orders. Your trusted builder clients have historically gotten a pass on prepaying special orders… but something has happened twice this year that’s making you take a fresh look at that policy. Here’s the story:

You’ve known Sam Shoestring since he was a young carpenter just learning the art and science of homebuilding. Sam is one who took his craft seriously. He wasn’t just swinging a hammer; he was building someone’s home. When he decided to go into business for himself, building modest-priced custom homes, you believed he was a good risk and extended a line of credit.

In the 12 years since then, he built a reputation in your market as a craftsman and a man of his word. The one thing that hasn’t changed since the early days is he still operates his business on a shoestring. Having been a carpenter once, he pays his people generously, and takes pride in providing homeowners with outstanding quality for far less than they’d pay for a lesser house from a competitor. You’re proud to be his supplier of choice and have had no qualms about working through the inevitable bumps in the road that come with our business.

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The first “bump” came earlier this year. Sam placed a special order for a high-end entry door. No deposit required, because he ordered it for a custom home he was building for a well-to-do client. When the door arrived from the manufacturer, the client insisted that he’d selected a different model—and just refused to accept it.

The second bump happened just a couple months later—and was strikingly similar to the first. This time, Sam and the homeowner were in your door display area when the client chose the custom door that they couldn’t live without. Again, once the door arrived, the client insisted that the door they chose just wouldn’t work.

In both cases, because Sam ordered the doors on behalf of his clients, there was no prepayment required. In both cases, you were left with two unwanted and unpaid-for custom entry doors. “I’m so sorry,” Sam exclaimed. “Nothing like this has ever happened to me—and now it’s happened twice in one year. I’d offer to pay for them, but my margin on these homes was so tight, I’d lose money and maybe have to go back to work for someone else.”

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What would you do?

–   Eat it. These aren’t the first times you’ve been stuck with a special order, though it is the first and second time there was no prepayment. Accept it, try to sell the doors at cost, and move on.

–   Make Sam pay. There’s a reason you don’t require your builder customers to prepay special orders: because you know they’re good for it. The responsibility falls squarely on Sam.

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–   Update your policy. It doesn’t matter who’s at fault, the only thing that matters is that you fix it. Moving forward, no special orders from anyone without 100% prepayment.

–   Talk it through. Talk with your builders, and explain that this happened twice in one year, and ask for their input on how to prevent it from happening. They may have the answer.

What would you do?

SOMETHING ELSE?
If you’d take a different plan of attack, email your suggested solution to Rick@LBMJournal.com. If we publish your reply, we’ll send you an LBM Journal mug.

 

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