Inflicting Pain (August 2018)

After my softer, gentler message last month, as promised I am returning to the more traditional focus on finance, cash flow and business performance.

It is a well-known fact (if you don’t believe me, check Google) that people are often more motivated by the avoidance of pain than the seeking of rewards. In certain situations, that is exactly what I am trying to accomplish. My goal is to inflict sufficient pain so that the least painful option is for the other party to exhibit the behavior that I am seeking.

I was recently at a client meeting and they were discussing practices for following up on outstanding accounts receivable. A fairly typical follow-up process was to send an email, wait 30 days, and then send another email. Upon hearing this, I told them that was essentially giving the customer permission not to pay! The sole consequence of not paying (or slow paying as the customer in all likelihood will eventually pay their bill) is for an email to show up, most likely far away from the person making the decision about what gets paid in the next check run. If this is your approach, it’s just not going to get the job done.

Now, clearly one has to consider the overall customer relationship and I’ll acknowledge sometimes one can catch more flies with honey than vinegar (a phrase my Dad used which took me years to understand) but at some point one has to turn up the heat and inflict as much pain as possible so that the less painful option is for them to write a check and get you paid.

When companies are tight on cash, they are making day to day decisions on who they must pay and who they are going to string out one more day (which turns into weeks and sometimes months). If the sole consequence of not paying you is an email every 30 days then the likelihood is that they are going to pass you by and opt to pay someone else. If, on the other hand, they know that they are going to get a phone call, email copying others, text or personal visit (yes, I have shown up at times when necessary) then you are more likely to take precedence over others.

Years ago I was chasing money for a client and was calling and texting the CFO on a regular basis. The money was coming in more slowly than I would have liked but I was getting payments regularly and the balance due was getting smaller. Finally, it stopped and I couldn’t get a response.  A short time later I got an email from a colleague with a news article. The owners of the company had pleaded guilty to federal tax charges, were sentenced to prison and ordered to pay $5M in restitution costs involving payroll taxes on more than 100 employees.

So, while the CFO who was one of the owners was not paying employment taxes and who knows what else, my approach had been painful enough to him that he was sending money to my client. He knew he couldn’t avoid dealing with me (at least not until he went to prison) and had apparently decided that his least painful option was to pay my client (which I’m almost certain meant that he decided not to pay someone else).  Ultimately, we still had to take a partial write-off but I felt better knowing that we probably gotten as much as we could have hoped for given the circumstances.

Is your collections process inflicting enough pain?  After all, the customer is paying someone, why not you?

By the way, you don’t have to limit this approach to collections!

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you.  Please give me a call at (314) 863-6637 or send an email to [email protected]

The archive of these monthly newsletters is posted at the Resources section of homza.com

your cash is flowing.  know where.®
Ken Homza
Copyright @ 2018 Homza Consulting, Inc.

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