Spotting Customers in Trouble

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Information on how to handle customers in trouble. Topics include cash flow vs. profit, talking to customers, talking to the bank, etc.

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Spotting Customers in Trouble

  1. 1. Spotting Customers in Trouble <ul><li>Spotting Customers </li></ul><ul><li>in Trouble </li></ul><ul><li>By Mike Morley, CPA, CCE </li></ul>
  2. 2. Spotting Customers in Trouble <ul><li>Cash Flow vs. profit </li></ul><ul><li>Profitable companies go broke </li></ul><ul><li>Generating cash to survive and grow </li></ul>
  3. 3. Spotting Customers in Trouble <ul><li>Talking to customers </li></ul><ul><li>Relationships </li></ul><ul><li>Honey vs. Vinegar </li></ul><ul><li>It’s all in how you say it </li></ul>
  4. 4. Spotting Customers in Trouble <ul><li>Talking to the bank </li></ul><ul><li>Bank language </li></ul><ul><li>How the bank thinks </li></ul><ul><li>What to tell the bank </li></ul><ul><li>When will the bank make a move? </li></ul>
  5. 5. Spotting Customers in Trouble <ul><li>Talking to suppliers </li></ul><ul><li>What’s in a credit “rating”? </li></ul><ul><li>How the supplier thinks </li></ul><ul><li>What to tell the supplier </li></ul><ul><li>When will the supplier make a move? </li></ul>
  6. 6. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Change in payment pattern </li></ul><ul><ul><li>Slower </li></ul></ul><ul><ul><li>Faster </li></ul></ul><ul><ul><li>Inconsistent </li></ul></ul>
  7. 7. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Change in payment pattern </li></ul><ul><ul><li>Returned cheques </li></ul></ul><ul><ul><li>Partial payments </li></ul></ul><ul><ul><li>Frequently uses same credit note twice </li></ul></ul>
  8. 8. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Lack of commitment </li></ul><ul><ul><li>Timing of payment </li></ul></ul><ul><ul><li>Amount of payment </li></ul></ul><ul><ul><li>Approval required from top </li></ul></ul>
  9. 9. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Lack of commitment </li></ul><ul><ul><li>“ Weasel Word” language </li></ul></ul><ul><ul><li>Promises that are conditional </li></ul></ul><ul><ul><li>No call back as promised </li></ul></ul>
  10. 10. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Disputes </li></ul><ul><ul><li>Increase in number/frequency </li></ul></ul><ul><ul><li>Change in nature of disputes </li></ul></ul><ul><ul><li>Lack of documentation </li></ul></ul>
  11. 11. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Disputes </li></ul><ul><ul><li>Legal actions </li></ul></ul><ul><ul><li>Disputes with other suppliers </li></ul></ul><ul><ul><li>Wants only rep to settle disputes </li></ul></ul>
  12. 12. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Disputes </li></ul><ul><ul><li>Invoice copies </li></ul></ul><ul><ul><li>Bills of lading </li></ul></ul><ul><ul><li>Who placed the order? </li></ul></ul>
  13. 13. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Disputes </li></ul><ul><ul><li>Shipped to wrong address </li></ul></ul><ul><ul><li>Extended terms because shipped early </li></ul></ul><ul><ul><li>“ Duplicate” orders </li></ul></ul><ul><ul><li>Billed to wrong name </li></ul></ul>
  14. 14. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Other suppliers </li></ul><ul><ul><li>Increase in requests for credit ratings </li></ul></ul><ul><ul><li>Customer negative about other suppliers </li></ul></ul><ul><ul><li>Suppliers reluctant to provide full credit information </li></ul></ul>
  15. 15. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Other suppliers </li></ul><ul><ul><li>Increase in collateral/security registrations </li></ul></ul><ul><ul><li>Other suppliers reporting lower sales to customer </li></ul></ul><ul><ul><li>Other suppliers reporting customer difficult to deal with </li></ul></ul>
  16. 16. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Change in Ordering/Purchasing pattern </li></ul><ul><ul><li>Increase in order frequency/size </li></ul></ul><ul><ul><li>Customers negative about other suppliers </li></ul></ul><ul><ul><li>Lack of purchase orders </li></ul></ul>
  17. 17. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Change in Ordering/Purchasing pattern </li></ul><ul><ul><li>Uses same purchase order for multiple purchases </li></ul></ul><ul><ul><li>Asks for “consignment” deals </li></ul></ul><ul><ul><li>Wants to “exchange” inventory </li></ul></ul>
  18. 18. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Change in Ordering/Purchasing pattern </li></ul><ul><ul><li>Delay in receiving purchase orders </li></ul></ul><ul><ul><li>Orders placed at the last minute </li></ul></ul><ul><ul><li>Most orders have become urgent </li></ul></ul>
  19. 19. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Change in pricing structure </li></ul><ul><ul><li>Requests last minute pricing concession </li></ul></ul><ul><ul><li>Often says rep gave a special price </li></ul></ul><ul><ul><li>Frequent requests for exceptions </li></ul></ul>
  20. 20. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Change in pricing structure </li></ul><ul><ul><li>Wants to renegotiate everything </li></ul></ul><ul><ul><li>Frequent “verbal” arrangements </li></ul></ul><ul><ul><li>Rebates and discounts </li></ul></ul>
  21. 21. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Refusal to comply with terms of sales/credit agreements </li></ul><ul><ul><li>Takes discounts after end of qualifying period </li></ul></ul><ul><ul><li>Wants rebate cheque instead of credit note </li></ul></ul><ul><ul><li>Unauthorized returns </li></ul></ul>
  22. 22. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Refusal to comply with terms of sales/credit agreements </li></ul><ul><ul><li>Does not take agreed to volume to qualify for rebate </li></ul></ul><ul><ul><li>Refuses to pay interest </li></ul></ul><ul><ul><li>Frequent account reconciliations </li></ul></ul>
  23. 23. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Refusal to comply with terms of sales/credit agreements </li></ul><ul><ul><li>Does not provide payment details to apply payments to correct invoices </li></ul></ul><ul><ul><li>Special shipping instructions without paying the extra fee </li></ul></ul>
  24. 24. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Change in ownership </li></ul><ul><ul><li>Insider or outsider </li></ul></ul><ul><ul><li>Nature and structure of takeover </li></ul></ul><ul><ul><li>Reason for selling </li></ul></ul>
  25. 25. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Change in ownership </li></ul><ul><ul><li>Bulk Sales Act </li></ul></ul><ul><ul><li>Still involved in business? </li></ul></ul><ul><ul><li>Related party? </li></ul></ul>
  26. 26. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Refinancing </li></ul><ul><ul><li>Looking for another bank </li></ul></ul><ul><ul><li>Source of financing other than bank </li></ul></ul><ul><ul><li>Request to subordinate your debt </li></ul></ul>
  27. 27. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Refinancing </li></ul><ul><ul><li>Major suppliers not informed </li></ul></ul><ul><ul><li>Lack of financial statements for suppliers/bank </li></ul></ul><ul><ul><li>Request to subordinate your debt </li></ul></ul>
  28. 28. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Change in communication for finance </li></ul><ul><ul><li>Frequent change in customer’s finance contact </li></ul></ul><ul><ul><li>Will talk only to sales about finance issues </li></ul></ul><ul><ul><li>Calls returned slowly, after hours, not at all </li></ul></ul>
  29. 29. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Change in communication for finance </li></ul><ul><ul><li>No available signer </li></ul></ul><ul><ul><li>Vacations </li></ul></ul><ul><ul><li>Change in the form of payment (cheque vs. wire transfer) </li></ul></ul>
  30. 30. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Change in credit terms </li></ul><ul><ul><li>Increase in order frequency/size </li></ul></ul><ul><ul><li>Customers negative about other suppliers </li></ul></ul><ul><ul><li>Unilateral change (often from 30 to 60 days) </li></ul></ul>
  31. 31. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Change in shipping procedure </li></ul><ul><ul><li>Every order seems to have unique shipping instructions </li></ul></ul><ul><ul><li>Orders after daily shipping cut-off </li></ul></ul><ul><ul><li>Wants multiple shipments because late in ordering </li></ul></ul>
  32. 32. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Rumors </li></ul><ul><ul><li>Company news </li></ul></ul><ul><ul><li>Industry news </li></ul></ul><ul><ul><li>Persistent rumors </li></ul></ul>
  33. 33. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Rumors </li></ul><ul><ul><li>Do not ignore </li></ul></ul><ul><ul><li>Enlist help of sales </li></ul></ul><ul><ul><li>Encourage sales to report rumors </li></ul></ul>
  34. 34. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Market conditions </li></ul><ul><ul><li>Drop in overall market </li></ul></ul><ul><ul><li>Customer poorly positioned to compete on price </li></ul></ul><ul><ul><li>How sensitive is the market to deteriorating market conditions? </li></ul></ul>
  35. 35. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Merger/Acquisition </li></ul><ul><ul><li>Deal was closed when times were good </li></ul></ul><ul><ul><li>Effect on cash </li></ul></ul><ul><ul><li>Plans to rationalize the purchase </li></ul></ul><ul><ul><li>Obsolete inventory </li></ul></ul><ul><ul><li>Finance costs </li></ul></ul>
  36. 36. Spotting Customers in Trouble <ul><li>Signs of a customer in trouble </li></ul><ul><li>Customer employee dissatisfaction </li></ul><ul><ul><li>More than one customer employee openly complains </li></ul></ul><ul><ul><li>Discontent has been apparent for a while </li></ul></ul><ul><ul><li>Discontent seems to be growing </li></ul></ul>
  37. 37. Spotting Customers in Trouble <ul><li>Spotting Customers </li></ul><ul><li>in Trouble </li></ul><ul><li>By Mike Morley, CPA, CCE </li></ul>

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