The Art Of Getting Back Pending Dues From Your Customer

[Editorial Notes: Companies do not pay their suppliers on time – and reasons range from ‘lost your invoice’ to ‘the purchase manager is on leave’ to anything creative. Venky from eFarm (reviewed here) shares a few great perspective on the art of getting back pending dues from your customer.]

Though there are a million strategies and books on improving sales and setting sales targets, a great sales figure means nothing , unless the customer ACTUALLY pays the bills due in full !

Collection Agents

Collection Agents

The .com entrepreneurs may live in an elite world of customers willing to sometime pay in advance (booking ticket) or atleast pay instant cash (COD) so end up with a positive cash flow almost instantly. But for rest of the 99% of the ‘real world’ entrepreneurs , it is an often untold story of what happens AFTER getting that BIG deal with a brand name customer – a long chasing behind the accountants and purchase managers to get paid (or laid ;-). This article is not about issues with credit terms with the bigger guys – shops, establishments,bulk buyers of products and services- who primarily operate on some credit.

None have exploited this fact more than the branded and ‘well known’ names in business.. the small entrepreneurs and vendors are attracted like flies to moth paper as they feel that ‘a reputed company’ would never go back on their commitment . Oh Oh Oh !

Since all business visions are centered around ‘Customer is King’ and keeping the emperor always in his new clothes often has ended up creating so many paupers with no clothes on! And once again the right balance of customer satisfaction and operational discipline is something I learnt in the back gullies of Bandra – from the guys in white topis – no man, not Team Anna – but the ‘Original white topiwallahs’ of Mumbai – the dubbawallahs . They serve from slums to star hotels, all with same strictness and courtesy and are quick to say ‘No’ even to Prince of England ! It takes someone to stand up and say – ‘Dudes, you are all naked’ ..So here is our experiences of doing ‘collections’ at eFarm .

Collections is a fine art – I’m not talking about ‘Hussains’ lying inside some Gujju Bhai and Koki Ben’s attic. Im talking of ‘Collecting Money From Customers, after the pre-determined due date and credit limit is far exceeded ‘. THAT kind of collections ! In simple words, if customer pays on time, then the entrepreneur has cash in hand to buy more inventory , take on further orders , pay salaries (at least for others). But as cash flow stops, it brings all the zeal to a grinding halt OR they run back to their investors or banks asking for capital. And desperation is never good during any negotiation – even if they raise the funds, often the conditions are still more stringent, starting a vicious self collapse.

If it is so critical and wide spread, then why don’t we hear about this in any of the forums ? entrepreneurship events or talks?

I feel probably, real world entrepreneurs, don’t want to embarrass their customers and ending up in self pity or writing off the losses on their books as a ‘learning expense’ . or they pass the buck down the chain . Or wait to recover the losses in the ‘next customer’ who will walk in, using this for exposure and reference.

So how does one go about actually avoiding this situation ? The entrepreneur often has to do the collection rounds himself. Not only are they expected to deliver the goods, provide the credit period but further get harassed running from one department to another trying to get the bill passed – well, you thought private firms often have more bureaucracy than even government.

When you hear things like – “Oh we have to send the bills to our Head office some 1500 kms away to get it approved, and we send it by pigeon-mail” your alarm bells should start going ON. Another classic is – “Oh, we don’t have email so couldn’t download your e-bill , can you print 3 copies of your invoices in pink paper A4 size, single sided?”. Ya man, everyone has facebook on their cells, twitter in their TVs , and god knows how come the accounts office still run Charles Babbage’s age adding machines! And of course , their corporate office will be painting town read about ‘Grow More Trees’ campaign – at rate your accounts is ripping them, you do more forests !

And then when you need to face a Purchase manager , who fancies a correspondence MBA to impress his new CFO, start refreshing calculus to trigonometry . For this self proclaimed Junior ramanujam will start applying every known mathematical equation to slice and dice, map your data to 20 competing vendor rates, lowest common denominators applied, and if anything is left in dues , won’t be worth the time to even cross checking their maths wizardy in ‘credit notes’ and ‘deductions’ applied to the bill.

The most recent head banger of course is with some of these ‘new age’ food court kiosks in the malls. A bunch of NRIs or spoilt kids of rich dads decide to cash in on the ‘food retail wave’ in India . No harm there , but just getting an ‘elephant’ to your launch event is not going to guarantee that the customers can also be ‘mahout’ed inside the dining room – unless they come for ‘Kabab-e-Gobar’ experience. Everyone wants to be the next Big Mac – build one store and make another 100 idiots (ahem franchisees) pay for the expansion – just that even the 1st cookie crumbles even before it hits the mouth.

So,Should we hire a third party collection service to do the needful ?

Collection agents immediately brings images of ‘thugs in suits’ – the dreaded credit card collection agents from Private banks harassing innocent householders. Their only tactics is just ‘ irritate the hell out of the guy till he pays’ . But with lot of Supreme court norms on how this is to be handled, the effectiveness is rather questionable .

Beside often the person you are trying to collect from is not some middle class Madahavan living in a Tamilnadu Housing Board. It could very well be Vijay Mallaya – oh yes sir.. the Grand big daddy of biggest bad debts and most notorious for not paying bills is none other than the ‘King’ of Fishy people. From airport fees , to mid flight meals his dues run millions – in spite of the strictest of cost cutting – to all his bikini models that is.

Everybody fears that if they rattle the cage, their customer would switch to their competitor .. well, , if someone is on such thin wicket that they haven’t yet created a niche and strong symbiotic relationship with a customer, maybe it IS time they start doing that making switching costs expensive. Otherwise they don’t need they don’t need a competition to kill them– their own lack of innovation just did that !

But, there is hope …

Probably the only people who actually pay on time (or sometimes even in advance) are the small hoteliers and road side eateries (‘kai yendhi Bhavan’) selling anything from piping hot idlis to burger Pavs. As their ops cost is lowest, and they know customer tastes the highest, and the ‘chef’ and ‘the businessman’ is a one-man startup, they are profitably run. And if business starts to dull in one spot, the next ‘killer location’ is just a push cart roll away.

With the new food safety drives trying to kill the road side food experience, must say, we are actually killing the ONLY successful Indian food chain which is Profitably running for generations. Yes, they may need some ‘tweaking up scale’ , but if the Mumbai chowpatty chat wallahs area proof – the biggest bandra celebrities would be standing in line , while the Big Mc opposite swats flies .

So, what are venky and Valli’s hard earned tips for bringing your Account Receivables (in lay terms- moolah from the customer) to zero defaults .

  1. Like the bankers keep saying – KYC – Know Your Customer. It is often not enough to know just the Purchase in charge or the Vendor Supervisor. You also need to know the Finance department people and Heads. And sometimes you may know the CEO, but the line managers are the once who do day to day decisions. So , basically know EVERYONE in your customer side as possible. You never know when you may need their help.
  2. Follow our Sages from yore on how to handle the errant ones : “Saama, dhaana, bheda, dhandam” are the four step ‘sage advice’ as per our own traditional principles of handling any people issues in stages of coercion.
  • Saama : persuasion – if the automated reminders/emails don’t work, often a ‘personal’ human call works magic as most auto reminders end up in spam folder.Go up the decision chain to talk to ‘senior’ people based on response time.
  • ‘Daana’ means using carrot (and a stick) – well, if you are in sabzi business like me, giving carrots should be a no brainer).. drop hints on what happens if he doesn’t bite the carrot ? Make it clear.
  • ‘Bheda’ means ‘creating rift’, manipulating or mismanaging relationships. Start rocking the boat, stop deliveries. Pain travels faster in a large organization than pleasure. You may be doing fantastic work, but the CEO wont know. When you stop, he will come rushing to meet you.
  • ‘Danda’ means punishment : Well, one can go legal (or hire some local goon to break a few legs)- but these are messy . But in modern tech connected world, several simple and innovative options are cropping up of how David’s beat Goliath’s with nothing more than a few tweets , a rough cut video or a picture even !

Most business establishments now are actively tracked and reviewed and promoted in various portals like burrp, mouthshut etc., End customers do check product reviews and other user experiences before dealing with an unknown entity.With SEO and social marketing becoming the norm , no one can ignore a bad online PR today. And if you are idling like me, waiting for the customers to complete their ‘quarterly audits’ ,’monthly reviews’,’annual vacations’ to get your weekly check, then you can try writing lengthy articles like this. It may not work in short term, but some publisher may just find it funny and I may become the next Chetan Bhagat.

The most classic in recent times if of course the ‘United Breaks Guitars’ case . How a normal flight passenger who saw his expensive guitar had been mishandled broken by the airlines and further appalled by their apathy. The Youtube link says it all (embedded towards the end of this article). It is now a legend , having sequels and many others trying similar power of internet to bring giants to knees.

One strange thing I have realized that as a small entrepreneurs , we are actually the biggest ‘financiers’ and ‘angel investors’ to the customers we actually try to serve. We provide the inventory free, we provide the customer a cash float for no interest and are happy to even get negative ROI to just keep making more investments into a wealthier company . Technically the small companies are ‘unknowingly’ funding the Bigger companies, when it should be the other way around ! The typical logic of course is that, initial losses would be compensated by future gains through references… but the credit cycle just gets bigger and riskier as you take larger customers.

One thing which was suggested recently by one of our advisors, was to take a deposit from the customers and actually not work with someone if they don’t pay up ahead. At that time I was obviously less enlightened and pooh poohed this as a blasphemous concept. I stand corrected . Though it seems a bit pushy to ask your customer for a startup advance or loan , – if he is unwilling to put that initial capital then two things are possible. Either your product/service isn’t critical enough for him to take that risk , which means you need to go back and make your service that much better they cant live without it. On flip side, maybe he isn’t financially stable enough to even offer that small float and himself running on fumes, so you need to take a call.

Closing remarks :

If you are an entrepreneur, and facing similar issues, or know someone in such situation, feel free to forward this note .

And if you are a CFO, and work with vendors, please do realise that jumbling with the assets & liabilities in your monthly report may make your presentation look charming , but just know that someone higher than you in the food chain is drawing YOUR chart right now.

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[Reproduced from Venky's earlier conversation. Image credit: Affendaddy]