Business Ideas

COD as a method of survival? Could be. In my line of work I speak to a large number of small business owners. It has been interesting to hear their war stories concerning this economic downturn. Most rail against one thing or another, seeking to place blame. Only one has nothing but good things to say about how it is going.

He owns a business that offers a service to other small business owners. He has been at it for over 30 years. Of course he has seen ups and downs and what he has learned keeps him afloat in the current business climate. Wait, that is an understatement; he keeps way more than afloat, he is smooth sailing.

So how does he do it? It is all in how he handles receiving payment for the work he does. He did not always do things this way and does so now only because of a hard lesson learned. It is a lesson more businesses should learn. Here is his story.

When he opened his doors there was not much competition. An easy entry into the market allowed him to gain a foothold and he began to make money very quickly. Sadly, he did not get paid very quickly. Following the norm he offered terms to his customers. They all said they needed them.

He bounced along under this system for a few years. Some customers paid on time, many did not. He found himself spending almost as much time trying to collect, as he did on producing new work. His frustration level was sky high. He often said to himself, "If I had wanted to become a banker, I would have studied finance in college. Why can't people just pay me?"

It soon effected how he paid his suppliers. He had always paid them COD, but was increasingly harder to do. Some friends told him he was crazy to do this. He said it allowed him to better control his costs (no interest) and his vendors gave him a cash discount. Just an aside here, he had to ask for those discounts. He noticed his suppliers gave discount for payments made within a certain time frame but didn't offer those discounts to him even though he wrote a check on the spot. He asked for a similar discount and was given it and sometimes even bigger, for paying at the time of purchase. This helped, but with his real problem, it was no solution.

As his business grew he developed a good customer base. Soon, as always happens he found some customers that were larger than others. The lesson learned was coming. He produced a significant amount of work for one customer and as usual invoiced it with terms. On the due date of the invoice he placed a friendly call to his customer just to see when he might expect payment. The amount was large and he need the money to pay his bills. The customer said all is well and he should receive payment in a few days. Sound familiar?

After a few months of calls, assurances, lies, and stalling, he found out the customer's company was going belly up, because they couldn't get their customers to pay them. Eventually, (many months later) he was paid 9 cents on the dollar. The amount of money lost was equal to two months of average revenues. The lost reverberated though his company and even his personal finances. He confided in me that he almost lost his house before he recovered.

He had learned his lesson. No one would get that deep into him again. Every new customer was taken on only with the understanding of paying when you pick up your order. No exceptions. His existing customers were placed on a very short leash. If they were not current on payment they would get no additional work.

It was not as easy as it sounds. The competition over the years had grown and each of them also offered terms. He had that thrown up in his face time and time again but, he held fast. As you might imagine his business was rebuilt slowly. His customer base was very loyal because of his quality of work and soon came around to his way of invoicing. He eventually began taking on customers only by referral... someone else had to decide if they would/could pay on delivery. During a 6-7 year stretch he even had an unlisted phone number. He had reached a level where he felt comfortable. He eventually republished his number.

Then a few years ago, his phone began to ring off the hook. It seems that a number of his competitors were closing their doors. They couldn't weather the downturn. They were stretched to the limit by customers who couldn't pay them. They had to shut down their businesses because they had no cash to pay rent, buy supplies, or pay their people. They were up against what this fellow had faced years before and couldn't get past it.

Their customers still needed work done and they began to call. He said they were very interesting phone calls. Each new customer he took on had to be reeducated. They were surprised when they heard they had to actually pay when they pick up their work. This was new ground for them. Many balked and went elsewhere. Those who agreed were taken on and more than replaced the customer who had gone in house with his work.

Two years later, he has more business that ever and EVERYONE pays him upon delivery. He has just had the best year to year increase, both in dollars and percentage, he has ever experienced. He says that probably won't happen in 2010 but, expects to still grow his enterprise and add some new equipment...paid for with cash of course.

He realizes SOME companies could never go COD, but wondered aloud how much better the national economy might be it most did. It saved him and has allowed him to survive the ebb and flow of business while allowing him to expand painlessly when he feels the need.

Could you be like this man? If you own, or are thinking of starting, a small business, consider what he has learned and see if it will work for you. As he said, "Cash in hand is better than an invoice in the drawer."