Customer profitability is at the forefront of today’s market discussions. Primary focus is on customer profitability by addressing the revenue each new customer brings in and not the potential losses – failing to factor in the total cost of the customer. When thinking of profits and losses in terms of customers it is important to see all elements of profitability.
An element rarely acknowledged is customers that just don’t pay their bills at all. Or do not pay them within a reasonable amount of time. The impact is well known.
Every day that a dollar is not collected by your finance department, is another day that your cash flow is reduced. This may cause a reliance on short-term financing, such as lines of credit, revolvers, or just the inability to pay your suppliers and other accounts.
Bad customers can often mask themselves as great buyers —but in reality— are really bad payers. They can bump up your DSOs, often paying when and how it pleases them. There may be times when these types of customers pay only after long disputes, and questioning every item on an invoice.
Even though every dollar may have been collected; the question now becomes “what is the cost of collection?” If the cost and time required far exceeds other accounts, it might be time to consider that a customer may be costing more than they are worth. In this case, it may be time to discuss with the customer terms of continuing the business relationship.… Read more