About 10 years ago I was at the awards ceremony for one of the mobile distribution majors where motivational speeches are given and, with lots of fanfare, the company announced the award winners for region, district, and individual jobber sales excellence. In addition to the sales awards, there was also an award for the mobile jobber who had the best record for collecting money. Why I remember this so well is that when the speaker announced the recipient and the winner walked on stage the audience went wild. This guy had to be 6’6” with hands like Michael Jordon and was built like a human jackhammer! You could hear the jobbers in the audience saying, “Who on earth would stick this giant for his money?”
Unfortunately, for you averaged sized mortals, collecting your money can be a real challenge. Bad debts can range from three to five percent of a jobber’s annual sales, according to Tool Dealer Network. That could be as much as $40,000 if you are an $800,000 jobber. According to the 2021 Professional Distributor Reader Survey, collections are a critical issue for 61.6 percent of readers.
Financial ramifications of skips
Lets look at this issue financially. You sell a product for $145 with $30 down. Your receivable is $115. Granted I am using estimated cost and profit numbers, but you will need to sell about $500 just to cover this loss. So, for every buck you don’t collect, you need to sell about $4.50 just to break even.
- Sell price: $145
- Cost of goods sold: $87
- Gross profit: $58
- Estimated operating costs etc. (25%): $14.50
- Net profit (NP): $43.50
- Sell price : $145
- Down payment: $30
- Receivable: $115
- Customer skips, amount lost: $115
- Sales needed to just make up the loss: $383.33
- Lost NP on $383.33 of sales: $115
- Sales needed to get whole: $498.33
Collections are a “not fun” part of a mobile jobber’s work but of the three best ways for you to go out of business, receivable write-offs are right up there with not making your calls and not asking for the order.
When you “tote the note,” you are functioning as an independent lending bank or credit card company and the first thing a bank does is make sure they know who they’re doing business with. As you know, a bank will not lend you a dime until they know just about everything there is to know about you including your shoe size. How about you? When a new technician shows up at one of your stops, do you do your due diligence on their creditworthiness before you trust them with your money?
How to prevent skips
Start with getting the new customer to completely fill in and sign your customer profile information document. Call their previous employer. Take a picture of their driver’s license and their vehicle including the license plate. This may seem invasive to you, but you are lending them your money. You have a right and need to know who you’re doing business with. Even if this technician is paying cash each week, getting their credit card information is another way of hopefully insuring payment.
When your customer realizes that you know everything there is to know about them, they are a bit less likely to skip.
Be 100 percent sure they understand the repayment terms you are offering them. Give them a document with everything spelled out and get a signed copy that they acknowledge, accept, and understand your terms of repayment. The extra time you invest up front on this issue, the happier you and your customer will be.
As a side note, I realize that there are professional “skippers” who get something on credit from one jobber, pawn the product, keep the cash, and never pay back a dime. You might consider subscribing to a service that communicates mobile jobber skipper information on individuals nationwide, such as Tool Dealer Network. As a subscriber, you provide your skipper information to the database as do the other subscribers. You then simply look up your potential new customer to see if they have a record of skipping. As their database grows, so does your access to the bad technicians.
Each month this column helps you learn how to close more deals and sell more stuff but in the case of a new customer, baby steps is the best course of action. As this individual makes their weekly payments on time without a hassle you can slowly increase their credit limit. Beware of the customer who finances small purchases repaying promptly and then goes for a major tool storage or equipment purchase borrowing thousands. This is the standard tactic of a conman and professional skipper.
Life-changing events affect your customers’ ability to repay. A major family illness can severely hurt a customer’s cash flow; a divorce is a huge lifechanging and financial event — be alert to these circumstances too.
Keep an eye on your customers’ spending habits. You call on technicians every day and should have a good understanding of their income potential in the facility where they work. If your customer is working where the normal income is $60,000 to $75,000 and they’re driving a new Suburban and riding a Harley and also have a boat and a nice house, they could be up to their ears in debt!
What to do if your customer isn't paying up
All the caution in the world will not eliminate late payments and skips as they are a fact in your business life. They need to be handled quickly and firmly and, unfortunately, our legal system says you can’t be like Tony Soprano sending your monster collection encouragement agents to motivate your customers’ repayments. So, what can you do when the need for collections happens?
At the very first sign of a problem, take the person aside from their coworkers and kindly talk openly about their obligation to you. Explain that you understand that problems arise in everyone’s life and that you will be happy to work with them on their payments but firmly impress upon them that you expect your money. If you come across as less than firm, you will be seen as an easily delayed payment. In the first instance, you need to not come across as overly aggressive or hostile but certainly not wishy-washy.
Make sure your customer pays something, even if it is not a full payment but don’t let this continue. There are some states where if you continue to accept partial payments the courts may decide that you were satisfied with these partial payments and must now allow them.
You need to be very careful that you do not impugn someone’s character at their workplace since this can lead to a defamation lawsuit. But asking your “no-pay” customer for your payments loud enough for some co-workers to hear is not without its merit. Walking in the shop and announcing that you are looking for that deadbeat so-in-so is not the best way to approach this problem.
Once your customer has missed three or four weekly payments, it is time for additional action. Three to four weeks may not seem like a lot but if you miss three or four car payments, the repo-man will be knocking soon. For each month that passes, your chances of collecting are reduced by at least 10 percent.
In jobber training, companies will say to not throw good money after bad focusing more on your selling. This seems very one-sided since your suppliers always get paid by you and skippers don’t really hurt them.
The court system is one alternative but depending on your state laws this could take years and keep you significantly away from your selling time.
Collection agencies are a possible alternative, but they can be so expensive that they may also not be worth your time. Additionally, some collection agencies will want you to sign the debt over to them. This is risky as the debt is now theirs so you may not ever get repaid and if they own the debt, they are not subject to any fair collection practices laws. In my opinion, Tool Dealer Network may be an option for you. It is a mobile jobber only collection service that has reasonable collection rates and follows the collection regulations.
If you are thinking that you don’t want to be known as a hard-ass by your customers that is the wrong thinking. A strong reputation in the industry for wanting your money is perfect.
And now, most importantly: Go sell something.
