Business Decision Question

[oiltech09]

What would you do if you received the below response from a company that is late again on paying their invoices and you just received an order from them for $6500 that they expect me to float them on? They have paid me in the past but very slow doing so. I have removed the names.

"Accounting advised me about your account status and I wanted to contact you personally and explain why we are currently past due with you. In order for me to explain our position I have to provide you with some information. Bear with me and I will try to explain what is happening as candidly as I possibly can. At the end of this it is your prerogative to say I don’t care and pay me my money however I don’t think that is realistic. Like many other service companies we experienced a slow first quarter. This was driven by poor market conditions and inclement weather. We had work delayed and / or cancelled due to not being able to transport people and equipment. Our field group experienced the worst quarter they have ever seen as an entity. If you add the fact that we have (4) major clients that currently owe us a huge amount of money over 90 days plus (2) clients in bankruptcy and (1) experiencing internal litigation between partners, our cash flow has been strapped. We did switch credit facilities at the beginning of the year in order to achieve better terms and conditions . In theory this was supposed to help us however they won’t allow us to recognize the revenues that are over 90 days, in bankruptcy, and / or litigation. Our system’s group is extremely busy with a healthy back log of work however several milestone payments have been delayed due to no fault of ours. The client changed the scope of work and / or components during the project however we can’t bill the last milestones until physical completion. I felt confident that we could keep our vendors whole however as you can see things have been tough. With this said, we have experienced a great April to date and we are expecting revenues to begin coming in from the System’s milestone payments and initiatives to collect revenue from our problem clients. We are turning the corner however it isn’t happening as quickly as I expected. I ask you to recognize the issues that we have faced and to appreciate them accordingly. I will ensure that we make a payment to you as soon as possible. We are working diligently to generate as much cash flow as possible despite the issues that we have been faced with recently. I will meet with our accounting team at the end of this week to evaluate our receivables. I will follow up with you as soon as I can commit to a payment amount and date. I ask you to please continue working with us and I can assure you that we are healthy despite the road blocks. We presently employ 350 people and generated $53MM in revenue last year. We are a sound company however due to the above issues and significant growth we have found ourselves in a tight spot. Please contact me with some feedback as soon as possible".

[dirtdemon]

i dont know mark, in one sense your a buisness man too and you have bills to pay so pay up sucka, but on the other hand every buisness in the world is struggilng so do you have compassion and say lets get threw it together

[BARRY J]

That's a tough one. There are a bunch of questions I would ask myseld

Can you afford to lose their business?
Will they eventually pay the bill?
Will the profit margin be enough to wait 90 days for payment?
Can you afford to wait 90 days for payment?
Is there any chance their business will fold and stick you with the balance?


I would drive myself crazy trying to run a business with thst size invoices. My biggest worry is if someone will pay me $75 this month.

[JOHN202]

Mark, you ever heard of Dunn and Bradstreet ? I would check these guys out, they possibly could be in the middle of filing chapter 11 or 13 , either which will cost you money. Have you discussed them paying by credit card or weekly direct deposits into an account for you ? i would be careful, but check them out and make them give you a deadline for payments in full or weekly\monthly on paper, and also if you have a lawyer ask them for advise as well, most of them know alot on this matter.

[trizzle]

To me it sounds like they will not recieve some of the money that is owed to them so i would not do it because of this.......unless u trust them......

[oiltech09]

The one thing that really concerns me about his statement is him speaking in past tense

"I <u>felt</u> confident that we could keep our vendors whole "

This tells me some or other vendors have pulled the plug on them.

[RogerR]

If they have always been slow to pay and you can afford to do without their business, it is time to tell they when they learn pay on time you will supply them.

[Rebel1]

<table width="90%" cellspacing=0 cellpadding=0 align=center><tr><td>Quote, originally posted by BARRY J &raquo;</td></tr><tr><td class="quote">That's a tough one. There are a bunch of questions I would ask myseld

Can you afford to lose their business?
Will they eventually pay the bill?
Will the profit margin be enough to wait 90 days for payment?
Can you afford to wait 90 days for payment?
Is there any chance their business will fold and stick you with the balance?
</td></tr></table>

I agree with Barry.

[jcdogfish]

That would depend on how much they owe, how late they are, did they have a consistant payment history til now, and if you can work out a payment plan. If there is a lot of profit in the customer? Is there a lot of profit in the $ 6,500 they need now. Are they a loyal customer. I have worked with people in the past that jump ship the minute they can save $100. If deep down they are good customer with consistant payment history up to this point I would roll the dice with the $ 6500 and negotiate a long term contract. If they want you to work with them, they should be willing to work with you for future work. However, as a slow pay customer before they will probably always be slow pay. If they pay you consistantly at 45 days or so you know how to price them. BUT,if you always have to beat them up for payment or they are past 60 and 90 all the time, or they only pay you when they need something else,,cut them loose.

[jcdogfish]

Barry, I wrote off over 50k of unpaid invoices last year, Thats a lot for a small company.

[jcdogfish]

I just read your other post. Go with your gut feeling as you seem to know the person writing the letter. Might be a good time to offer them a good discount on what they owe you if they pay now. If they won't consider that offer chances are they are not confident they can go forward. We are dealing with a few of those now, its been a tough couple of years. Good Luck.

[cajunsmitty]

A company of that size should have a fairly decent credit line that they operate on. If they are tapped out on their credit and have absolutely no cash flow I would definitely be hesitant to work with them until they are current. Unless you have a personal relationship with them and know all the details behind their situation, I would be careful.

[oiltech09]

After further consideration if these guys can't pay my measly invoices but can do $53M/YR something is wrong and I am not a bank. We are in biz to make money just like they are. They will have to bring a check for their new order and their balance w/ me will remain a receivable which I hope they pay. If they don't at least I won't be out too much & I can call their clients and give them the low down. I am hearing the money crunch hit different companies. I just don't understand how they can poise themselves as some big outfit but not own a pot to piss in or have a window to throw it out of. I have always believed if you can gross a minimum 20% on a product, pay your overheads and net 15% you are doing OK, BUT take another 8% out of the 15% to give to the bank which leaves 7% net....you are screwed. Thanks for the ideas & suggestions

[oiltech09]

no cash flow

That's the problem and no more credit

[rgbi]

Being a business man my self I would have to say that if they had trouble paying in the past then nothing is going to change in the future. With that being said if your company is not hurting with the ecomony right now then I might would gamble but if I was just making ends meet the there is no way I'm going to put my business in more limbo than I'm already in.

[DOUGMCGEEFTD]

Mark just my thoughts but i would tell them i understand the past due situtaion and that you will work with them on that past due balance. But that until the past due balance is paid in full then you can no longer extend credit due to your cash flow situation(truth or not)! Tell the you really do understand and appreciate their business but that your suppliers are demanding payment for good s and services as well as your employees needing to be paid. finally let them understand that they are but one of the companys that owe you money and that everyone is having cash flow issues due to the past year are so economy. IMHO

[jcdogfish]

Thats why I said offer a discount on the past dues. I do that a lot with people I have that sinking feeling about. If they know they will come out of this and have not been cut off by the bank it is a no brainer to hit the credit line and save money. If they or their bank are not willing to take that deal its probably time to walk. By the way, I can't tell you how many times I have pinched a customer to bring in a check for past dues and what they need and the check bounces like a superball. Especially if they wait a week or so then bring you the check. The next thing in the mail is the reorganization letter that tells you that you are #1,432 on the list of unsecured vendors, which means you get nothing and the bitch of it is you can't go get the stuff they just got.