DEALING WITH CASH POOR CUSTOMERS
The situation of the ATO mentioned in my previous blog, shows us another business story. This is the story of how to deal with cash poor customers. It is a story which all business people would be wise to learn.
One of the reasons why the ATO may be currently acting ruthlessly against delinquent tax payers, is because it offered business people a degree of leniency when the GFG first started. So what happened?
Instead of responding positively with the ATO and repaying their debts, many business people treated the ATO's offer with contempt. They just just used the offer as another delaying payment tactic and/or as a sign of weakness by the ATO.
The ATO found that being lenient was not treated with respect and in the end, felt abused. So now the ATO appears to have gone the other way and is acting to protect their own interests before that of the taxpayer.
Likewise, when times are tough, for example the GFC, business people are often led to believe all their customers have been innocently caught by events not of their own making. In other words, their customers are unfortunate victims of the GFC.
Well, it may be true that some of their customers have been caught short by the GFC despitehaving good business practices. Equally true however, other customers may be cash poor due to their own previous sloppy business practices or for ignoring the signs of the impending GFC.
Therefore, like the ATO, when business people were told of their customers' cashflow problems, they might have been more lenient about payment terms. Again, like the ATO, they found their customers often took advantage of this 'kindness' and delayed payments even more.
In these instances, the average business owner/manager having been 'nice', turns nasty. They found being nice didn't work, so they go for the money to protect their own immediate business interests.
The outcome of this approach, as the ATO is finding, is their customers simply go out of business and any monies owed, disappear.
What should have occured on the first 'cashflow poor' approach?
The first act should have been to review each customer's situation. There is no doubt, leniency was the correct approach for many customers and would have yielded more positive than negative outcomes.
Equally, in many cases, some customers would have found to be poor trading partners even when times were good. Consequently, many of these customers should have been told to pay up or else.
The end game is; not all customers can be treated equally. It applies in sales and credit extension, and also applies to existing slow paying customers.
May you be paid today rather than tomorrow.