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Beating the Deadbeat
By Mark Weinkrantz (Editor’s Note: Mark has two professional lives: as a pilot for Northwestern Airlines and as a manufacturer with his own company, Counter-Productive Enterprises. As you read his article, imagine the difficulty airlines would have if they tried to collect from passengers after the flight!)
There are several different motivations for manufacturers to go to the trouble and expense of putting their products out in the hot sauce market. Chief among those are the pride of putting your special touch on a product and, of course, the expectation that your efforts will be rewarded monetarily. When the purchase orders do start coming in via mail, fax, and phone, it’s a great feeling to know that your hard work and investment has paid off. Unfortunately there are also those times when day after day you look at your bookkeeping program and it keeps displaying a list of overdue accounts. So, what can you, as a manufacturer, do to beat the deadbeat and collect for your product?
One of the first things you can do is talk with other manufacturers. That’s exactly what I did to research this article and discovered that uncollected accounts hurt everybody in the industry. The obvious first casualty is the producer who doesn’t receive payment for products delivered in good faith. Unfortunately the end result is higher prices charged to reputable buyers to offset losses. Like with credit cards, we all pay higher rates to make up for the people who don’t pay their bills. One of the manufacturers I spoke with calmly told me he saw deadbeats as an operating cost in the business and adjusted his bottom line to accommodate them. He had no personal feelings of being "taken" and didn’t want to waste time, energy, or expense in pursuing terminally delinquent accounts. (In an effort not to disclose individual strategies for producers, I have chosen not to name names in this piece.)
I wish I could adopt the same attitude as he does but I can’t help but take it personally when someone has consciously decided to take product from me without paying. My personal checkbooks haven’t been balanced since 1976 but my business account is correct to the penny. To track down errant accounts, there have been times when I’ve taken advantage of the pilot job part of my life. That allows me to travel and drop in on accounts that have gone "gopher" and refused to even return phone calls. It’s much more difficult for other manufacturers to travel cross country to collect fifty dollars and the unscrupulous businessman knows that. Fortunately, the vast majority of purchasers in this industry are great people and payment is made in a timely manner. The personal relationships that develop in this business also make it very easy to let an account "get around" to paying when slow times pass. But while these are the folks that support us all and deserve mention, this article isn’t about the occasional slow payer but rather about those retailers who deliberately set out to con you.
Common sense is your best weapon against being taken advantage of. The old axiom still holds that if something sounds too good to be true, it probably is. In my limited experience (and the more expansive years of experience among the other manufacturers I spoke with) don’t be pressed for delivery. Sure, the new buyer is offering you the largest order for your new products that you’ve ever seen and he tells you the only way he does business is "Net 30." What do you do? First and foremost be professional. It is entirely within that realm of professionalism to ask for credit references. Or as another manufacturer suggests, ask to guarantee the purchase against the buyer’s credit card (business or personal). Don’t hesitate to ask other manufacturers if they have had dealings with a buyer. There are many buyers that I will personally vouch for and pledge to make up any shortfalls that might occur because I believe in those individuals very strongly and I enjoy helping somebody else get their products on the shelf. This kind of shared information has saved me the expense of shipping off samples to Michigan to an individual who faxed out requests for his chain of nonexistent stores.
On the subject of sending out samples, there are also ways to keep from wasting time, money, and product. These days it’s a big expense to ship out eight bottles of products every time a potential buyer expresses interest. Sampling is integral to getting orders, but how do you avoid simply adding to somebody’s hot sauce collection? There are two easy steps that have been suggested to me. First, ask for a written sample request (always on company letterhead). This will eliminate some sly collectors and also provide you with good information for your files on a potential new client. The second suggestion came from a manufacturer who has about twenty different products. He simply charges for the samples (at wholesale pricing) and when the first order comes in, he deducts the price of the samples from that order.
When I’m flying there are certain things that key me to become more aware of what course the flight is taking. Weather, fuel consumption, passenger comfort, and a thousand other things have to go into the decision making process. Similarly I’ve learned there are certain cues that should raise suspicions about the possibility of an account going delinquent. Let me first restate that the vast majority of people involved in this industry are trustworthy and conscientious and if any of he following "warning signs" might apply to them it is in no way an indictment. Instead, I would simply suggest that a manufacturer make an extra effort to protect himself from unnecessary losses.
The following is a list of questions you might want to ask yourself about an unknown new account. These suggestions are compiledfrom many long-established manufacturers and my personal experience.
How long has the buyer been in business?
Is the first order somewhat larger than you would expect?
Does the second order arrive before payment has arrived for the first order?
Does the buyer ask you to ship to other locations and still bill him? (This one got me a couple of years ago. It gave the new recipients product with no demonstrated responsibility for payment.)
Is this business the primary job for the buyer?
Is there a business address or is everything done out of a residence? (Get a contact phone number and make a call.)
Has the buyer abandoned distributors to do business directly with the manufacturer? (This can be due to the fact that his payments to the distributor are already behind or it can be a legitimate move by the buyer to deal directly with the manufacturer.)
Have any other manufacturers had payment problems with this individual?
Is this a year-round enterprise or is the buyer just stocking up for the holiday sales period? (His shortfalls in sales might be your shortfalls in payment received.)
And finally, is there just "something" bugging you that makes you feel like you’re being set up? (Trust your instincts and go back to the earlier suggestion about polling other producers. If there is a negative history with a particular buyer, it doesn’t take long for that information to get around.)
A step beyond the word-of-mouth canvassing you can do about individual buyers is a subscription to a credit reporting service. For the cost of a dozen or so cases of hot sauce you can have detailed information about business and payment histories. The only drawback to this approach is that new businesses and short-term changes in fiscal responsibility cannot be included in a totally timely manner.
All these suggestions are proactive and designed to prevent you from finding yourself making those attempts to recover payments at 60, 90, and 120 days. If after all your efforts you wind up with overdue receivables, there are few options left. One of the bigger distributors has retained the services of a collection agency. He simply turns over the delinquent account after a certain amount of time and attempts on his own. Then the collection agency steps up the pressure to recover the money due. They generally work on a percentage basis of what they do recover so there is no question as to their motivation. If you have the time and patience you can be your own squeaky wheel. After all, it is the squeaky wheel that gets the grease. Or in this case the manufacturers that are the most persistent are most likely to get what is owed them. There is a peculiar exception to this, however. Unless your products are necessary to the continued success of the buyer, it may be more difficult for you to get payment. The top-selling sauces will be the ones whose owners will undoubtedly get paid off first. Besides, after he’s taken your product and exhausted you as a source he can always move onto the next unaware manufacturer and do the same thing to him.
All this reinforces the point made earlier. It is imperative that as manufacturers and distributors we share information about the deadbeat accounts. This can be done easily without compromising professional relationships or coveted account lists. Deadbeats are a negative influence on the entire industry. The point should be made here that manufacturers can occasionally be included the deadbeat category as well. It would then be of benefit to label makers, glass sources, advertising accounts, and anybody else who depends on manufacturers to do their homework as well.
I celebrated 1999 as my first year to collect 100 percent of accounts due. This can be attributed to a few things. One of the major reasons is that every one of the distributors that carry my products has integrity and always pays what they owe. I also am very lucky to be dealing directly with a number of retailers that are like extended family. We support each other in the slow times and take pleasure for each other when the sales are running hot and fast. Finally, I believe that one last reason I went without a non-payment in 1999 was because the people who would have taken advantage of me had already done so in the years 1997 and 1998. I learned some of my lessons the hard way. Hopefully some suggestions I have made may help you avoid those pitfalls.
