What would you do with a slow paying customer who's a friend?

[cornerstore]

Ask him for some form of security to back up your debt now a de facto loan. Then put him on a cash only sales basis. If he is a true friend he will give the security and understand that you are helping him out. If not a true friend you will quickly find out. Discounting for payment as you suggested is a good way to start the discussion.

[swatty]

Tricky situation. If you stop supplying him then he can't make money to pay you unless he gets product from somewhere else. Keep suppling on COD basis. I'd go and meet him face to face and try and work out a payment plan. If all else fails send him a letter of demand followed by legal action. Sometimes friends and business don't mix.

[Tony64]

Originally Posted by swatty

Tricky situation. If you stop supplying him then he can't make money to pay you unless he gets product from somewhere else. Keep suppling on COD basis. I'd go and meet him face to face and try and work out a payment plan. If all else fails send him a letter of demand followed by legal action. Sometimes friends and business don't mix.

Excellent points. Reminds me of the old saying, "If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem."

[Sperry]

"Listen, I need to pick up a chunk of money from you before starting the next ____________."

No money, no more whatever.

[amg55]

Originally Posted by swatty

Tricky situation. If you stop supplying him then he can't make money to pay you unless he gets product from somewhere else. Keep suppling on COD basis. I'd go and meet him face to face and try and work out a payment plan. If all else fails send him a letter of demand followed by legal action. Sometimes friends and business don't mix.

That's exactly what I've been doing to keep him afloat. We did work out a plan but that slipped as his cashflow worsened.

[amg55]

Originally Posted by rolexgiants

It's hard to form an opinion without knowing the amount he owes you. How much money are we talking about?

In Rolex currency, it'd be a Platona.

[ugazag]

Definitely face to face is in order. It sounds like his falling behind is w/ others and not just you. If he owns the business, it has got to be one of the most painful things to have your business fail. You don't know what of his personal assets are involved. I'm going to guess he's extremely embarrassed not to mention scared. If your friends, you may be able to get some money before others prior to any potential insolvency. Agree with the others, cut a % and cod in the future. If possible, perfect some liens in equipment, etc., and make sure you're in first position on those liens. If he's a friend and this is something he can do, he'll do it. One of the best ways to approach this is to allow him to save some face - that will show him that you're their as a friend without being a chump. Finally, get whatever you work out in writing with personal guarantee. Use your lawyer, he's kind of like a trusted seller - sure you pay him a lot of money, but you get something good from it and save money to boot.

[Dcdfinance]

Originally Posted by amg55

Sadly, no. We work in food business and most of the stock are in and out overnight. There wouldn't be much to salvage.

Depending on how much he owes you and his gross revenue (not net) I can possibly finance him for the amount of the debt regardless of his credit. A UCC would be filed however. Pm me for more info if you are interested...

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[rolexgiants]

Originally Posted by amg55

That's exactly what I've been doing to keep him afloat. We did work out a plan but that slipped as his cashflow worsened.

Stay friends and a record a 2nd mortgage on his house! Lol.... give him a 7 year pay out at 9 %. Win win.

[Gaijin]

If he's not taking your calls I doubt that he will meet you face to face. Worth a try though.


Time to end your business relationship with him and friendship.

[Kingair]

Originally Posted by Gaijin

If he's not taking your calls I doubt that he will meet you face to face. Worth a try though.


Time to end your business relationship with him and friendship.

X 2 !

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[amg55]

Thank you for all your inputs thus far. It's quite clear that there are lots of business folks on here who has experience this dilemma at some point. Isn't it fun to run one's own business?

A small payment came through today with a text message citing problem with his bank's technical problem etc. I've heard it all before. I hope to meet him next week, though not sure if it will achieve any solid commitment. His house is heavily financed, like most of his assets.

I've been looking at this problem from another angle for the past 12 months and that is as long as I continue to trade with him and he doesn't go under, I can at least make the margin to eventually offset the impending write off, which I will come out worse of but probably not as bad as straight bad debt.

[Andad]

I would expect you have the same regulations we have in Oz.

Every year, as part of your returns, you must declare that up you can pay your debtors and are not trading while insolvent.
If your friend is in the situation that you are describing then he would not be able to do this.
Preferential creditors would be paid until the money runs out.
If he pays you now and his business folds then the money's received by you may need to be returned.
At least in Oz.
He needs to trade out of this preferably without any more credit from you.

[Porter]

Originally Posted by Gaijin

If he's not taking your calls I doubt that he will meet you face to face. Worth a try though.


Time to end your business relationship with him and friendship.

This. X3.

"Time flies like an arrow. Fruit flies like a banana". Groucho Marx.

[Reglin]

If he is a true friend, he will find a way to pay you (come hell or high water). Lesson learned; don't do business with friends where the extension of money is involved. It's a recipe for disaster.

[77T]

On balance the friendship is becoming lopsided due to this trouble. If a Platona's worth of AR is consequential to your firm, then he's stopped being a friend to you despite your feelings towards him. (Not being a psychologist - just mho)

If your list of friends is short, or his friendship is irreplaceable, I suppose to keep plugging along seems OK. It isn't helping him that much because those other suppliers are eventually going to file on him.

On the other hand, you could close his account and file - and help him get to formal restructuring as quickly as possible. It's a gift in disguise although neither of you may realize it at this time.

Just curious, before you were friends and he was just another customer, did you check the NPII list for his name/business? This may not be his first problem.

[Runnin' Rebel]

This has happened to me. No one is going to put my business in jeopardy or my family's security in harms way. Friend or not cut him off, if he doesn't understand he's not a friend or understands business. He pays then you can start business relation again. Tight leash though..

Let him go to another supplier, are you the only supplier within 75 miles with the product. You said it's a small circle of wholesale guys, you want to known as a sap ? No you don't.

Wow. Easy decision for me. My family comes first.

Best of luck

[SMD]

Originally Posted by amg55

I've been looking at this problem from another angle for the past 12 months and that is as long as I continue to trade with him and he doesn't go under, I can at least make the margin to eventually offset the impending write off, which I will come out worse of but probably not as bad as straight bad debt.

Keep in mind what you sold him had a margin built in, so that is lost profit not lost money. Then when you write it off as bad debt the government absorbs a portion of it as a deductible expense (in my country that is about 1/3). So depending on your margin, you may only be out of pocket 1/3 of the total amount in true losses.

Be very careful about continuing to do business with him hoping to earn your way out of the loss. I had a similar thought by encouraging a customer who owed me many hundreds of thousands of dollars. I wanted him to go into BK to reorg since he was way undercollateralized to the bank and figured it was in all of our interest to work out a long term payment plan and keep him in business. The bank had way more to lose than I did. And, I could continue to provide him with products during the reorg, which would be paid first as vendors to businesses in BK get priority over other claimants. This way I could earn enough on the future sales to offset what I would lose in the reorg. Did not work out that way (he just handed the keys over to the bank) and I had to go the legal route (which suprisingly worked out okay in the end but still ended up out of pocket about 50K, which again is tax deductible).

String him along as long as possible to get as much as possible from him, but make no mistake that money is gone and so is the "friendship".

[2ltdjorn]

I would drop the hammer on him, seems he has taken far to many liberties than a friend would.

[Fleetlord]

Stop the bleeding right now.

1) Put him on a hard credit hold immediately. No purchases on credit. PERIOD

2) Set up a payment plan with terms to pay off debt to your company within a mutually accepted timeframe. 52 weeks or so. Have him PAY YOU WEEKLY. You'll never see the payment if it's monthly. Have him sign a promissory note to this.

3) Allow him to purchase products from you COD only. He needs to be able to continue his business in order to repay you. You could also accept COD plus 20% overage to apply to the debt, but this can muddy the payment plan, so i would avoid this.

4) If he violates the payment plan for 2 consecutive weeks, (no pay) terminate the plan, close his account and send him to collections.

Honestly, this is an ugly situation that will more than likely not end well. Your customer is going out of business and you need to prepare yourself to lose a good portion of this money.....but you can try the payment plan route and see if he can pull himself out of the spiral.....but if he can find another supplier to work with...he will bail on you and the debt....really up to his character.

Good Luck!

[Rock]

Has this guy sought any help from business consultants/advisors?
The good ones are really worth their fee.
Some people just shouldn't be in business, they are too: nice/easy/relaxed/stupid/naive/etc. Sometimes they need a tough spouse to keep them on track.
It is not a good sign about his business acumen that he has just kept racking up the debts over years. A smart person knows when something just isn't working.

[amg55]

Originally Posted by Rock

Has this guy sought any help from business consultants/advisors?
The good ones are really worth their fee.
Some people just shouldn't be in business, they are too: nice/easy/relaxed/stupid/naive/etc. Sometimes they need a tough spouse to keep them on track.
It is not a good sign about his business acumen that he has just kept racking up the debts over years. A smart person knows when something just isn't working.

I did suggest to him a while back that perhaps he needs external help to reorganise / reassess his business. I think it fell on dead ears. He's just too proud to seek external help, kept on saying he's been doing this since his teenage years and he'll fight his way through it.

I pray every day that he'll make it through. I've accepted that it's only a matter of time and only try to string him along for as long as possible to minimise the eventual hit. I've made it clear to him that the credit limit will not get any higher.

[MonBK]

Originally Posted by amg55

I did suggest to him a while back that perhaps he needs external help to reorganise / reassess his business. I think it fell on dead ears. He's just too proud to seek external help, kept on saying he's been doing this since his teenage years and he'll fight his way through it.

I pray every day that he'll make it through. I've accepted that it's only a matter of time and only try to string him along for as long as possible to minimise the eventual hit. I've made it clear to him that the credit limit will not get any higher.

If he's been doing this for so long how come he's going down, do you know?

I must assume you're not selling him bad produce.

[amg55]

Originally Posted by MonBK

If he's been doing this for so long how come he's going down, do you know?

I do know some of the problems he's had these past few years. His shop caught fire, partial damage which required 3-4 weeks of renovations. He's had street parking in front of his shop turned into bus zones when the local authorities decided to rework the city's transport routes, this took away a lot of his customers. There were some tax problems. These three alone pretty much put him in ICU. It's just a series of bad luck that never seems to end.

[MonBK]

Originally Posted by amg55

I do know some of the problems he's had these past few years. His shop caught fire, partial damage which required 3-4 weeks of renovations. He's had street parking in front of his shop turned into bus zones when the local authorities decided to rework the city's transport routes, this took away a lot of his customers. There were some tax problems. These three alone pretty much put him in ICU. It's just a series of bad luck that never seems to end.

Got it.

[Abdullah71601]

Originally Posted by amg55

I do know some of the problems he's had these past few years. His shop caught fire, partial damage which required 3-4 weeks of renovations. He's had street parking in front of his shop turned into bus zones when the local authorities decided to rework the city's transport routes, this took away a lot of his customers. There were some tax problems. These three alone pretty much put him in ICU. It's just a series of bad luck that never seems to end.

Has he confided his plan to recover his customers? Is his plan reasonable? If not, he's not in ICU, he's in hospice. You can ease his departure or you can try to protect your interests.

[amg55]

Originally Posted by Abdullah71601

Has he confided his plan to recover his customers? Is his plan reasonable? If not, he's not in ICU, he's in hospice. You can ease his departure or you can try to protect your interests.

I will find out next week. I'm currently overseas for a short break, which isn't much of a break while constantly trying to figure out what I should do next with this problem.

[Etschell]

you could make him your butler.

[BristolCavendish]

Originally Posted by Etschell

you could make him your butler.

Spoken like a wealthy landowner. Indentured servitude is illegal in the United States (as per the 13th Amendment) but from what I understand, it is still being practiced in Australia (agriculture). Given their regional temperatures, one would probably be better off as a butler in an A/C dwelling rather than picking fruits and vegetables in the blistering sun/heat.

[amg55]

Sadly, the day I've been dreading arrived yesterday. One of his creditors pulled the trigger and has started legally winding up his business. It's all very complicated with a few layers of trusts involved. To his credit, he did come and see me to explain in person what's happening. I guess now it's in the hands of the lawyers and insolvency accountants to sort out. I don't expect to see much of out of it after the big boys get their cut first. Lesson to self... never let friendship cloud one's judgement when it comes to business. It can be rather disastrous. Fortunately, I can absorb this loss but a loss still hurts regardless of the size.