AS PRICES SOAR, HOW TO PROTECT YOUR BUSINESS FROM BAD DEBTS

As I write this article, crude oil is closing over $97 a barrel and diesel fuel with taxes is well over $3.00 a gallon. Over the past few months, we heard about several SIGMA mobile fuel members that had a large ($50,000 plus) debt owed to them by one of their customers that went out of business or filed for bankruptcy. They have all told me that they should have… (you fill in the blank). Before anyone else is taken for a big loss or any loss at all here are some of the basic steps to reduce your risk.

We surveyed several mobile fueling companies to get their input on this article. Credit risk is definitely on everyone’s mind. Most companies said that they would rather not grow their business at this time and are instead being ultra conservative about who they take on as new customers. All companies know the hard work that goes into making each delivery -- and to not get paid for it makes most people sick.

One of the main issues that most companies have is the lack of a written credit policy that everyone in the company can understand. Without a written policy people in your company and customers don’t know what you are trying to achieve. The policy needs to be held to the letter because when you start to make exceptions, then you start getting burned.

Here is a list of 10 steps companies can take to minimize their risk.

1. Review your current credit terms with customers. How did you arrive at those terms? Were those terms when diesel fuel was $3.25 or more? Did you take into consideration that some oil companies might be drafting your accounts quicker because of your line of credit with them?

2. Set up credit terms for each customer. Be conservative. Set up a process so when the customer reaches their terms certain things happen within your company like: calls are made to the customer, deliveries are put on hold, and follow up calls are made to the right people.

3. How often do you invoice your customers? Is it daily, weekly or less often? Think about making that process quicker. Yes, it might cost you more money for postage and invoices but nowhere close to what it costs to carry a customer. Additionally, from the day you fuel to the day you actually invoice, how long does it take? Some mobile fuel companies say they invoice weekly. What they say is they invoice from Monday to Sunday and then invoice on Monday. Is the invoice really going out on Monday or is it Tuesday or Wednesday or Thursday. Sometimes we all think it’s getting done in a certain time but we don’t always check.

4. With new customer, make sure they have solid credit. Run D&B’s or other credit checks. Most important check their current vendor reference list. If they aren’t paying them, they probably won’t be paying you. When you start servicing a new customer, have someone call them, other than the salesperson, and remind them of your credit terms and credit policy. Setting the requirements from the beginning make it easier down the road.

5. Use a transactional processor like Comdata, T-Chek, WEX or Fleet One to name a few. They are experts at handling credit terms, credit reviews, collections, invoices and probably do it better than 95% of companies trying to do it themselves. Yes, you will pay a fee. Retail locations have been paying those fees for years, so why can’t mobile fuel providers. You can include the extra cost in your fee. Some other positive things about transactional processors is if they take the customer then they are responsible for the accounts receivable, they put the money in your account 48-72 hours after you provide them with the transactions and you keep your lines of credit with the banks free for other things.

6. Your costs have gone up. You are paying more for carrying the customer. Your fuel supplier might be drafting your account quicker and reducing your lines of credit. Your fuel costs are higher. Make sure that you make adjustments to your pricing. This business is too difficult to be a hobby. With hobbies you don’t care if you make money, in business you do.

7. On current customers run updated credit checks. You should check all of your client’s credit at least 2 times per year. They might be paying you on time but not other vendors. If they start to pay other vendors slowly, how long will it take before they start to pay you slowly or not at all?

8. Always remind customers of your terms. Start an ACH or EFT program. Encourage the customer that it is for their benefit. Look for any odd payment patterns that might start. Most solid companies have a very consistent payment pattern. If a customer’s pattern changes, a call should be made right away.

9. Check your contracts with customers. If you don’t have any in place, now might be a good time to activate them. You can use a simple contract that just states you will do X and they will pay within Y. It helps in court.

10. Don’t fool yourself. Just because a customer is a large regional or national company doesn’t mean they can’t have financial issues. Let’s not forget about companies like AmeriServe or Consolidated Freightways and a long list of others. Identify industries that might have a tougher time then others like freight companies, auto industry, building supply companies and others.

When you are enforcing your credit policy think of how much work it takes to complete your operations. There are trucks needed, lost opportunities to deliver the amounts above. Share these or similar numbers with your staff so they clearly understand the impact bad debts can have on your company.

The Sokolis Group is a Fuel Management and Consulting Company. Please reach out to them if you need help with anything that was talked about in this article.

Glen Sokolis can be reached at (267) 482-6160 or gsokolis@sokolisgroup.com
or visit the web site at www.sokolisgroup.com.