You hate to ever have to turn down sales.
It feels good to get in every sales dollar that you can.

However, you have to remember it’s not really a sale until you have cash in hand. It is collections that really counts.

Because of that reason there could be times when you just have to put your foot down.

If you don’t, you could be picking up the rejects from your competitors. There could be customers that circle around. They’ll by as much as they can from you. Then when they suddenly can’t buy anymore, they’ll move on to the next person. Or, when a company says, "You can’t buy anymore because you’re too stretched out," they’ll rotate around.

So, how does somebody get paid in that situation? Often times, it could be putting the clamps on them and saying no more shipments until they get certain invoices paid up. That might be your final leverage in order to get payments to come in sooner. Over the long-term, you’ll have to decide if this is the type of relationship you want to keep into. It might be because it could be, perhaps, very profitable and it’s worth the trouble that you have to put up with on the receivables side. That would be your judgment call.

So when to say no, when to put a squeeze on the no more shipments?
That’s something better thought out in advance. First of all, you treat it before the emotions kick in, so you think at it from a more logically conclusion. Secondly, you have a framework to capture this ahead of time, so something is less likely to slip by you and get too deep in the hole.

When to put the brakes down can depend so much on your business. Consider when such factors:

1. How high are your gross margins? I had a telecom client and their effective margin on the incremental business was extremely high, in the upper 90%. They could afford to take very aggressive credit risks.

2. What’s the likelihood of an account going bad? It’s a numbers game, play the percentages, work the numbers.

3. Put those two together. If you lose an account, how many other new accounts would you have to sell in order to make up for the lost account?

So be prepared to put down the clamps when you need to. Nobody likes to have to cutoff a customer, but sometimes it just has to be done. Know your point ahead of time and keep with it. You just might find that you’re able to get better cash in from the problem accounts that keep falling in this category.

Jon Paul, MBA, CPA, CMC, CM&AA

President, Value Added Finance Resources
Bringing new insights on results and maximizing company value