09.25.2017 | Posted by Jasmine
Mother Nature and It’s Impact on Retail
Our collective hearts at Axim go out to all those impacted by the large recent hurricanes that made their destructive way through the Caribbean, Mexico and Latin America. Truly devastating acts of nature and now another is making it’s way through the same area. So tragic.
While the impacts on businesses several thousand miles away are trivial in comparison, with this being an A/R blog we’ll try to provide some insight on our thoughts for best practices in collecting accounts receivable during large scale and regional weather events.
There is no shortage of outside forces that directly affect business operations. Some may be the result of an owner’s mistakes, an untrustworthy employee or a market shift like we’re seeing in traditional retail currently. All problems and issues that arise and affect the collection of A/R, including random weather related events, have specific ways they are best dealt with to ensure the recovery of the money owed to your company.
On a fundamentally basic level, we’re all human. This human interaction is a necessary component of successfully running a business. There are times when using empathy in managing your Accounts Receivable is necessary and in general we find we achieve more success collecting money as a whole when using it.
First, we recommend having a high level discussion within your company to set some ground rules for the accounts receivable department to follow. Are you willing and able to grant an additional 30-60 days for those companies having difficulty paying? Are long term payment plans an option? What about discounts? Will you continue shipping customers that are asking for additional time to pay? What is the plan for shipping customers (prepay, COD, net terms) that will be putting in an insurance claim to be able to pay you? Who has the responsibility for making a final decision regarding these questions? Using these questions, come up with a plan to share with the A/R team on how to manage customers that were impacted by the storms.
Next, use this as an opportunity to reach out to your customers in the region. Print out a list of your customers in these areas and have your sales and A/R teams work together to call them. Get a feel for how they were impacted by the hurricane and let it guide your decision on seeking payment. Find out from them what they feel the effects might be on their business, cash flow, and future in general. Make sure they are accepting new shipments and will pay according to terms. We find taking a more nuanced approach, looking for understanding rather than using traditional collection methods, will elicit more information about the potential collectability of the receivable in question. Use that as a guide for how much you’re willing to work with a customer.
Understand there will likely be some write offs and bad debt. Use the call noted above to come up with a list of customers likely to pay, those that will need assistance of some kind, and those that likely will end up as a write off (or waiting/hoping for an insurance claim to come in to pay the invoice). The aggressiveness in which you collect these 3 different groups of invoices/customers should be discussed internally and acted upon in agreement. Many of these customers will appreciate you working with them and could strengthen your future relationship. Your help in getting them get back on their feet as best you can could allow for a more lasting business partnership.
Based on our experience, when you find a customer that has had such damage to warrant an insurance claim, your receivable will be difficult to collect. If you are not a large business critical partner to the company, it’s unlikely there will be full repayment. Additionally, we have found the claim resolution process to be rather time consuming and difficult to track. You won’t be the most important person to them at the current moment. They’ll be focused on getting re-opened to generate revenue to pay vendors like you and unlikely to take the time to give you a status update, no matter how nicely you ask.
The final question of when to start shipping again to customers in the region will need to be made on a case by case basis. Don’t assume a UPS is delivering and the store is open. Make sure the customer still needs, wants, and can pay for the product. If you have concerns, ask if they are willing to prepay for the order.
Lastly, always use your judgment. Your business success depends on it and this situation is no different. It’s unfortunate, but there are always companies that are willing to take advantage. Always ask questions and if you have concerns, get more information. You can ask for a copy of their insurance claim or police report, if applicable. Alternatively, you may want to try to get something in writing and signed regarding the details.