Requiring rapid payment from customers to finance orders when bank credit is tight.
If there ever was a stigma in asking customers to bankroll the financial needs of your business, it seems to have faded away in the current financial environment. Today almost everyone understands that bank credit is tight. So if you explain your situation and ask for rapid payment, a lot of customers may be quite willing to comply.
Systronics Inc., for example, a $2.5-million maker of measurement and control systems for manufacturers, asks its customers to pay 40% of the purchase price whenever Systronics receives a purchase order. As soon as the orders are completed and ready for shipment, the Norcross, Ga., company faxes ahead another invoice to its customers, asking for a second payment of 50%. "If we haven't received that payment in 20 days or so, we start hounding them," says chief executive J. J. Roberts. Systronics expects customers to pay the remaining 10% owed on the order upon acceptance of the shipment, or net 30 days.
Roberts says the company encounters little resistance to its aggressive billing requests. Those customers who do complain are told that Systronics would otherwise have to charge more for its products or extend its deliveries by several weeks. "If we didn't do business this way," notes Roberts, "we wouldn't be able to finance our orders at our current prices and margins. We've tried to borrow more money, but no bank has been willing to increase its lending to us."