REAL ISSUES. REAL ANSWERS: Credit and Collections
Making the sale is great. Receiving payment is even better. Considering that 97% of full line LBM dealers offer credit to their pro customers, it’s critical that companies have effective credit and collection practices in place. Because as we all know, all too well, collecting money comes complete with its own set of challenges.
Thanks to the hundreds of readers who shared their experiences, this month’s Real Issues. Real Answers. feature delivers details about timeliness of receivables, rates of interest charged, and verbatim insights on this ever-timely issue.
The topic is familiar—we covered it in this space back in January 2014 —but with remodeling and new construction up in most markets, we felt it was time to check in. This month’s question was prompted by a reader in Florida, who wrote: “I need help with collections. If you’re a small business and work in a small community, it is hard sometimes to play both good cop and bad cop. Please advise on how to collect what you are due while retaining the customer.”
We reached out with a brief five-question survey to subscribers who have opted in to receive our email communications. A big thank you to the 126 dealers who took the time to share their insights.
First we wanted to gauge how prevalent it is for our readers to offer credit. As expected, the vast majority of lumberyards (97%) answered in the affirmative. For those considered specialty dealers/distributors (i.e., windows and doors,roofing & siding, etc.), a smaller majority (86%) provide credit to pro customers. For the two types of readers combined, the total tops 94%.
Next, we wanted to learn how much of a problem past-due balances are, in general. As you’ll see in the chart below, customers aren’t tripping over themselves to pay early—with just under 19% paying within 30 days. (In answer to the final question, a number of dealers share how they are working to grow this percentage by using early pay discounts and/or better pricing.) Just under 78% of readers report average collection days between 31 and 60, with the lion’s share being between 31 and 45 days. Happily, fewer than 4% of respondents are battling with 60-day plus average balances.