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Why settle past due accounts?

Dudley

 

Dear Thea,

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I had a call with a customer who wants to “settle” his very past due account because the owner of the project isn’t paying them. The balance includes retainage, which wouldn’t be part of the settlement; they would pay that as usual. In the same conversation he asks us to supply another job. Our owner wants to take the order, but I don’t. I don’t want to settle but what if this is our only chance to get paid the majority of what is owed?

— Mystified in Michigan

 

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Dear Mystified,

Don’t blame the clown for being a clown, blame yourself for going to the circus. I too, am mystified. I’m mystified by your willingness to buy into this three-ring circus. Let’s get you out of that clown car and on to solutions.

Based on what you shared, you supplied a project and allowed retainage. That is a non-starter as a material supplier. That’s another column entirely, but you knew that was coming. Consider yourself reprimanded.

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Before you call the customer back, take a moment to pull a commercial credit report on the owner of the project. That will give you some idea of how you want to play this.

You didn’t say what the offer was for total balance, but rather than settle I would call your troubled customer back and tell him you are willing to help him by calling the owner of the project directly to help get their (and your) money collected.

Let him know you pulled a credit report on the owner, and you see no reason why they would not pay. Yes, that’s correct Mr. Customer, we want to help you and can do that by getting the project payment back on track

His reaction will tell you everything you need to know. If he pushes back and says something like “Oh no, I don’t think that’s a good idea, I don’t want to ruin the relationship,” or “That isn’t necessary this is between your company and mine,” there is a 99% chance that the customer got paid by the owner and blew it on popcorn, cotton candy, and the bearded lady.

If he is all for the support, you have a 75% chance that he truly has not gotten paid and could use the help. I say 75% to account for the 25% chance that he’s “bending the truth.” Choose one of these options:

Option 1: That clown spent the cash and needs to work a deal to get back in your good graces to purchase more. If this is the case, document the deal in a settlement and promissory note agreement that includes the retention. Secure it with something if you can. At the very least, use a UCC-1 filing to let other lenders know you are out there.

Option 2: Start working as a team to get the owner to pay up. There is usually a simple reason the money is held up. Once uncovered, you can work the logistics of how you get paid, keep your customer, and have a long a profitable life together.

One thing is bothering me still, and that’s the retention piece. If he wants to settle, why would it not be included? That smells like something you find after the elephant left the ring. If the project is sideways and he is trying to settle, it would be all inclusive. Option one is looking more like the reason for non-payment.

Do not send more product out the door without sorting this out first. Nothing leaves the warehouse without a locked down plan with signatures or payment. The only speed bump here would be Divine Owner Intervention.

I would like to point out this could have been curtailed if you preserved your lien rights. You didn’t mention them, so I’m assuming you don’t have any. If you do, slap a lien on that project and see who starts screaming first.

To sum it up, everyone wants to go to the circus, but no one wants to sweep up after the elephant. Put the broom down and move to the center ring. Take a whip and a chair if needed.

With more than 30 years of credit management experience in the LBM industry, Thea Dudley consults with companies on a wide range of credit and financial management issues. Contact Thea at theadudley@charter.net

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