Renee’s Rule™: Don’t sell to customers who won’t pay.

May 10, 2009

I have been shocked by the number of companies I’ve met recently that have been placed on COD or credit hold by their vendors but have not put any of their own, troubled customers on COD or credit hold.

Whether you are the CEO of a company, a law firm, or an accounting firm: Stop selling to customers who can’t or won’t be able to pay.  There is no way to overemphasize this point.  When a company is faced with declining revenues and profits, uncollectible accounts receivable make the situation worse and—in extreme cases—can be the tipping point that causes the company’s demise.

Today, it is absolutely not safe to assume that customers who have always paid on time will be able to pay on time—or, for that matter, at all, so review your credit policies and procedures and define carefully

  1. Who can have credit?
  2. Who can authorize credit, and what are the guidelines?
  3. How does the company verify current credit worthiness of customers?
  4. Who is responsible for monitoring timeliness of accounts receivable collections?
  5. What are the company’s collections policies; e.g.,
    • What steps does the company take when payments are late?
    • At what point is a customer put on COD or credit hold?

I will provide additional information about sound credit policies in a future blog post.  In the meantime, another Renee’s Rule™ applies: “The sooner, the better.”

2 Responses to “Renee’s Rule™: Don’t sell to customers who won’t pay.”

  1. May 12, 2009

    This is a great blog, Renee. You really know how to cut to the chase and get at what’s important. Your writing shows what a clear headed, sharp thinker you are.

  2. May 14, 2009

    Totally agree. Selling or providing service to customers who won’t or can’t pay is suicide, especially when you’re leveraging your own employee payrolls. Paychecks you write then come straight from the profit margins from your accounts that do pay, sometimes causing a negative cash flow for your company. Liens and other collection methods result in added costs to everyone, and may make a difficult-to-balance arrears amount totally unacheivable.

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