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What to Do About Customers Who Can’t Pay?

Skint Spelled Out Using Scrabble Tablets

Many clients struggle with this issue.  Do you ship products or provide services to a customer that clearly cannot pay? This article discusses some of the considerations you might want to consider before you provide the product or provide services. What do you think?

As reported by Fred Warmbier last week, he wrote about the challenges posed by a customer that cannot pay us either for parts we have already shipped or for those sitting on our loading dock. I have decided to risk looking like a fool to others who won’t agree with my decision: I’m going to ship those parts to the customer, even knowing that we might not get paid.

A strong belief that has come from conversations with my consultant, Kelly Allan, and from the books he asked me to read is this: I cannot control the behavior of our customers, but I can control our behavior, my behavior. And to me, it’s too negative to take the parts hostage. It takes us away from our purpose in business. Our purpose is to process parts, do quality work and be paid for it.

I called the owner to discuss things. Until now I had been dealing with others in the company. He was prepared, I think, for an unpleasant conversation.

It was a bit awkward as I explained that I wasn’t interested in holding his parts, and that he could have them picked up. We discussed his situation, and he shared how bad it was for them. This year has been as bad for him as last year was good. I get it. I also wanted to use this as an opportunity for him to get to know me and to hear what I believe. I wanted to be sure that my side of the street was clean. If we lose out on his business and the back debts, I’ve still got a company to run, and I’m going to run it my way.

It has helped to have done a little studying and to realize what’s important to me. Chasing a customer that can’t or won’t pay is not what I want to do, especially when the alternative is to look for customers that appreciate what we do and that can pay. We’ve chosen the latter approach.

It wasn’t only my reading of Viktor Frankl that made the difference for me. It was also the comments from readers of this blog who pointed out the importance of looping clients into our communications and our thinking. And the comments on last week’s post were typically insightful.

I especially liked the suggestions from Ian, Smslaw and SirWired about weighing the value of the parts by considering selling them elsewhere. Tyler Currie and Laughingdragon brought things into focus by stating that one aspect of finding “meaning” at work is a solid balance sheet. Tim, MH, VulcanAlex and Nate Awrich summed up that situation well with the pros and cons of what I need — and what the client needs — and not wanting to contribute to his demise.

Another factor in my decision was recalling W. Edwards Deming’s diagram of the organization as a system, a system that includes customers. Kelly has told me that when Deming drew a diagram of a company’s system on a chalkboard in Japan in 1950, it was the first time we know of anyone thinking to include the consumer — or, in my case, a customer — in a formal way in an organizational structure. I found that meaningful.

On the other hand, the client may have thought I was crazy. I tried to explain that I have considered his company a part of our organization — and in fact, I still consider it a part of our organization. I said we respect them and appreciate them. I said that even though none of us have any idea whether they will recover and eventually be able to pay us, I wanted them to know these things.

After I hung up, I think I may have been as stunned as he was. He was direct and clear with me during the conversation. The company is in trouble. He said he felt bad saying it, but I should not expect to get paid if his sales don’t pick up.

A number of readers asked if I could sell those parts elsewhere. Perhaps, but it’s not what I intend to do in these situations. And I’m feeling good about my decision. It may be crazy, but a calmness has come over me. We could be facing a financial crisis ourselves as a result of this client’s not being able to pay us, but I feel calm, even serene.

Other readers, M.I. Estner, Ian and Seattle Expat, confirmed my thoughts that we have to focus on sales. In the end I rejected the suggestion of trying to help the client with his sales. Doing so is out of our wheelhouse of expertise.

Obviously, the thing we have to do is to get more of our own sales, and then, secondarily — and to M.I. Estner’s point — not be so happy that we have such a large client when we do manage to get one; too many eggs in one basket. Diversification is needed. Of course, in theory I know that, but when you are running flat out, it is easy to forget.

I’m sure there are business owners everywhere thinking I’m making a mistake. And perhaps I am. But I feel good knowing I did what I wanted to do. I think it was the right thing.

photo credit: Skint via photopin (license)

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