Managing cost-of-living pressures on customers

A guide to credit control

There is no doubt that the current cost-of-living crisis is putting a strain on many household and small business budgets. In fact, data from the 2024 Capricorn State of the Nation report supported this, with 45 percent of Members identifying price-sensitive customers and cost-of-living pressures as a significant challenge. In order to help and retain customers who are struggling financially, it’s not uncommon for workshops to offer credit, a practise that can leave them facing an uncomfortable dilemma.

On one hand, workshops owners are often empathetic towards customers that they have built long-term relationships with. On the other hand, they need to manage their bottom line to keep their operation profitable, a situation that has not been helped by many people deferring the servicing/ repair of their vehicles for longer periods of time due to cost-ofliving pressures.

It’s a precarious situation to manage, so we’ve put together a guide that can assist workshops with the maintenance of both satisfied customers and a positive cashflow.

Implement a credit application process

The days of walking into the local petrol station or supermarket and obtaining credit are long gone. Given

this, it’s unreasonable to for customers of modern workshops to expect to be given access to credit simply by asking for it or sometimes even expecting it to be offered.

At the very least, customers who ask if credit can be arranged should submit to a formal credit application process, and like other industries, credit might be considered only for high-value customers, such as a trade client who runs a fleet of vehicles and services them with your business.

Use signage to educate your customers

If people asking for credit is a mounting problem, put up a prominent sign at the front counter to make your position quite clear. Such signs might say:

• Credit no longer available.

• We don’t offer credit, please don’t ask.

• Payment is required on collection of your vehicle.

How will you be paying for that today?

If a customer is going to have issues paying when they pick up their car, it would be preferable to know about it before any time is spent working on their vehicle. This puts you back in control of the situation. The best way to achieve this is to simply ask the customer when they drop off the vehicle 'How will you be paying for that today?'.

How they are going to pay is not the point of the question, but if the customer is hoping they can access credit, their intentions will be made clear right up front. This approach also plants the seed in the customer’s mind that they are going to have to pay as credit is not an option.

Have the invoice ready before the customer arrives

The number one reason why retail customers are sometimes given credit is that the workshop doesn’t have the invoice ready when the customer picks up their vehicle. It’s too easy to say 'We’ll send you the invoice.' This is a recipe for disaster. It may save you some time in the short term, but it will increase your workload in the future when you have to send out accounts and chase payment, and it certainly sends the wrong message that some customers may continue to exploit.

It must be standard policy that all invoices are printed and ready to present before the customer walks in the door. If the business ignores this priority it would seem to be time for a serious review of financial procedures. There should be no alternative, changes must be implemented to ensure invoices are ready for the customer.

Offer a finance solution

It’s only human nature that a business owner will become emotionally attached to a customer’s situation to the point of feeling obliged to offer them credit. This gesture of good faith has backfired on many occasions, leaving the business owner out of pocket.

Instead of reacting with a flat 'no credit', it might be possible to retain the customer by suggesting an alternative finance solution such as a 'buy now, pay later' plan. This is where the workshop signs up to a 'buy now, pay later' lender, which allows the customer to pay off the debt in instalments and the lender takes over the debt. This means the workshop gets paid, less the fee charged by the lender.

Watch for the signs, if a customer can’t obtain credit by conventional means, it could be a sign that they have credit issues and more pressing debts that they will need to take care of before they pay yours.

Adopt a debtor collection procedure

Debtor collection is a task nobody enjoys, and the best solution is to not offer credit in the first place. Regardless, it is best to have a routine procedure at the ready, rather than only reacting when you notice holes in your bank balance.

Run an accounts-receivable report on a weekly basis and follow up the late payers. Make detailed notes of conversations and promises — names, dates, times, what was promised. Always be firm, fair and friendly, and stick to facts. Don’t let the conversation develop into an emotional argument as nobody wins when this occurs.

Workshop operators will often have to deal with good customers who might be under significant personal or business financial pressure that requires a repayment plan to be developed and agreed. It can often be better to help such customers through and be paid over a period of time than to alienate them and never be paid at all.

However, it’s ultimately your responsibility as a business owner to assess each situation.

Re-educate serial late payers

Businesses don’t like losing customers, but sometimes tough decisions have to be made. Every workshop will have customers that the business might be better off without – the serial late payers.

If you want to retain their custom, they will often need some re-education about the importance of settling their accounts on time. Your first action should be to stop servicing or repairing their vehicles until their

debts are cleared. You then open the door to a discussion about resuming your relationship on the condition that future invoices are to be paid on time.

It’s normal to feel sympathy for families and other businesses currently doing it tough, but you need to remind yourself that, as a business owner, your first responsibility is to maintain a positive cashflow and protect your bottom line. To extend credit too easily is to court disaster, and your customers’ cashflow struggles can quickly become your own.

Stay focused and strong with your credit policy, because at the end of the day, that’s the only way to protect your profitability and keep customer relationships intact.