LAST WORD
Cutting Some Slack
When clients ask for more time to pay their debts, ask critical questions and consider the impact it would have on your company. BY MICHAEL DENSON
A
mong the more frustrating challenges that credit and collections professionals face are repeated requests, and sometimes demands, from customers for extended payment terms. Making the right decision for your company involves a careful investigation into the reasons for the request, and how to respond. First you must understand the “why.” Seek to determine if your client is going through a temporary cash flow problem, or if it’s permanent. You may learn that there is a change in the industry that is causing a general concern. Or perhaps the customer is making the request because everyone else is asking (and getting) extended payment terms. Maybe the customer has adopted a new corporate policy that extends to all vendors. Or it could be that the request emanates from your sales department. Ask questions to get at the root causes.
FUTURE SCENARIOS
It’s vital to know how a given extendedpayment agreement will impact your company. Consider the size of the client company, and if there’s a chance that you might lose its business if you don’t agree to its request. Maybe you won’t lose its business entirely, but a sizable chunk. Conversely, maybe you might get more business from the company if your terms were more lenient. As you contemplate those dynamics, take a look at the customer’s payment history over the past year or so. Has their payment history changed? Scrutinize the last document that you received from the customer that specifically mentions your payment terms. This might be a signed credit application, agency of record (AOR) document, insertion order or a side letter. The last document received usually supersedes all previous documents. Its 26 The Financial Manager • March/April 2019
Your customer has already agreed to your payment terms when they first became your client, and similar language should already be in your credit application. However, how many times have we seen that fail to work or we just didn’t enforce it? An alternative comment to add to the communication could be something like: “If the revised payment terms are not strictly adhered to, the extended payment terms will be cancelled with a 30-day written If you agree to notice and the original payment extended payment terms will once again be in terms, try to avoid effect.” Your legal counsel can firm this up if you decide to use putting it in writing a clause like this. ... A written stateAdding a comment in a side ment may only agreement about extending the cause further delays payment terms is just giving you more protection. The agreein payment. ment, whether sent by email or in the form of a letter, should be addressed to an officer or handled it. Belonging to an association a financial person at the advertising like the BCCA or a credit group like the agency and/or the advertiser. Their National Media Credit Professionals response should also come from that (NMCP) may prove very beneficial in person with their full name and title on getting information from your peers. the communication. Bottom line, it’s always a business deciTO WRITE, OR NOT TO? sion that you and the management of your If you agree to extended payment terms, company must make together. try to avoid putting it in writing. Some of The more challenging part will be the our customers pay late as it is. A written follow up for payment when the new statement may only cause further delays payment terms kick in payment. Push back and just say “no” in. If you stay on top whenever possible. of your customer, If that’s not possible consider adding a they will see that you comment to your written communication mean business, and saying that “in consideration for (your hopefully they won’t company’s name here) extending payment take advantage of terms from ___ days to ___ days to be your generosity. effective as of (date), (your customer) Michael Denson is director of credit agrees to pay all late fees, collection services for NMCP, which is managed in and related fees as well as interest at the partnership with ABC-Amega. He can be maximum monthly amount allowed reached at (716) 878-2860 or michael.denson@abc-amega.com. by law.” content may indicate that the terms on you credit application are no longer valid. Verify this with your legal counsel, if necessary. Also, determine if there are any contracts in place that may have to be amended if you agree to extend the payment terms. Ask others in your industry if they have been approached with the same request/ demand. If so, try to learn how they’ve
