HOW TO COLLECT FROM YOUR LARGE CUSTOMERS
by Barry Knepper 
November, 2008

Many company's biggest challenge is collecting from their largest customers.  Large companies frequently delay payment 90 to 120 days because they know that they are the largest customer and take advantage of that leverage.  Is there any way to address this challenge?

It is important to establish exactly why your customer buys from you.  Either have an independent party call, or have the guts to call yourself.  You can ask how important your products are to the customer.  The answer may be completely different than you think.  You may have more leverage than you think.

Much depends on the value the customer places on your company's product.  If your product is a commodity or is viewed as such by the customer and you have no distinct competency that is valued by the customer, you may have to live with the reality of the marketplace.  There is an old adage that states: "How fast your customers pay your bills is a good indication of how important you are to their business.  If they pay their bills slowly, you just aren't that important."

One thing to consider is how your competition is able to live with the terms set by the customer.  Perhaps your company should try to reduce costs to where it can compete with others in the marketplace.  You should build into your pricing the cost of financing a customer for 90 days, or choose to market to smaller but less-demanding customers.  If your large customer expressly asks for lower prices to meet the competition, you should begin the conversation with a discussion of payment terms.  After all, your company is not a bank.

Another tactic to use is to speak directly to the CFO or other senior management person, to explain your need for prompt payment.  You may be able to get your invoices added to a "prompt pay" list simply because you made the effort to communicate above the management layers that were holding up your checks.  Sometimes, merely establishing a relationship with the accounts payable department can help you get paid faster.  The people in the accounts payable department will often pay those that they like and have a relationship with first.  After all, we are all human flings.

Finally, it is important to remember that putting too many eggs in one basket is not healthy for your company.  A company that has many smaller customers is typically more valuable than one that has a few large customers.  This is due to the fact that if any one of those large customers were to he lost, it could have a devastating effect on the company.  Potential acquirers of your company will factor this risk into any offer to purchase your company.  Lenders factor the risk of sales concentration into their decision on whether and how much to lend to your company as well.

The fact is that customers that represent a significant percentage of your overall sales are a double-edged sword.