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Last year, I joined the credit department of a family-owned roofing distributor in Los Angeles. The company had been in business for 40 years, and its family culture flourished among both its employees and customers as well. It was our ace in the hole amidst fierce competition. We valued the personal relationships we had with our customers, and we did a lot of business on a gentleman’s handshake deal. That policy created a strong base of fiercely loyal customers, but it also led to a number of delinquent accounts.

Sending customers to collections is hard

When our company was acquired by a national roofing distributor early this year, we had to make sure that past-due accounts were collected as soon as possible. We needed to quickly identify which delinquent accounts would be closed, and handed over to a third-party collection agency.

Keep learning: How to measure Average Days Delinquent (ADD)

It wasn’t easy. As a credit professional with 18+ years of experience, my customers were more than just an account number on a spreadsheet. Relationships are important to me. 

I make it a habit to have an open and personal conversation each time I call a customer. It isn’t just, “Mr. Roofer-Who-Owes-Me, how much are you going to pay me today?” But rather, I try to ask probing questions to better understand the customer’s business, personnel, market, and opportunities. 

Striking a deal to save a delinquent customer

I identified one customer that owed us tens of thousands of dollars. We were fully exposed, with no credit protection at all. We hadn’t delivered any preliens on their projects, so our lien rights were nonexistent. The customer had only filled out a basic credit application, without even a personal guarantee

The account met all the requirements: My customer was delinquent, and was about to be handed over to a collection agency. 

But I knew this customer well. I saw potential in him to turn the situation around. I was not ready to give up on him and hand him over to a collection agency. Instead, I fought for him. Rather than send him away to buy from a competitor, I worked with him. 

Related: How to avoid delinquent accounts

The Deal: COD and pay down debt

I asked him if he could do cash on delivery (COD) for the time being. Moving to COD means I was denying him more credit, but it help protect our company going forward. He understood that. But we also needed to collect on overdue bills. 

So we came to an arrangement: Each time he placed a COD order, he would pay me at least 20% extra to pay down his open invoices. And when some jobs brought in more money, he’d pay down his balance even more. 

There were good days, and there were bad days. There were times I couldn’t sell anything to him because he didn’t have enough cash on hand to pay for the order. He was frustrated at times, but he understood my position. He trusted me. 

Dealing with pushback from leadership

After a few months, my director asked why this customer was not with a collection agency like the other delinquent accounts. I knew the account looked bad. All of their old invoices were over 90 days past due. On paper, it was hard to defend.  

But I told my director about the payment plan we had agreed on. And in the time since we struck a deal, the past due balance actually went down by more than 50%. I projected that by the end of the year, the customer would actually be current. Turns out, it wouldn’t even take that long.

For the Win: A delinquent account becomes current

On Friday, August 27, he finally paid the balance in full. His outstanding balance is now at zero. Zilch. Nada. He paid everything, including the late fees, which we didn’t write off. It was a struggle for him, but he was willing to work with me because of the relationship we had. I am so proud of what he accomplished. 

My customer never closed our communication line. He was honest with me. There were times he could not pay me, and he told me so. And I always laid down my cards with him so he could see what I was holding. I explained everything to him that we would both benefit if he worked with me. I also explained to him what could happen if this went south. By being transparent, I was able to establish my credibility with him, and vice versa.

Thea Dudley teaches credit & collections

Join the free certificate course to learn the foundations of credit & collections in construction with 30-year industry veteran Thea Dudley.

4 lessons when dealing with delinquent accounts

Not all delinquent accounts are bad. Some accounts just need to be worked on. 

The national distributor that acquired us had updated credit policies and practices that gave our company more protection from delinquent customers. We send preliminary notices regularly to protect our right to file a mechanics lien if we need to. And we require customers to complete a more complete credit application. If they don’t have the financial history to qualify, we ask them to sign a personal guarantee. These policies make it easier for us to hit our credit goals and avoid delinquent accounts from the start.

1. Invest in personal relationships.

Just because we now have stronger credit policies doesn’t mean we lost our personal touch. Customer relationships are still just as important as they were before. Our customers will never be just numbers or invoices. They are human beings. And human relationships require work to build.

2. Keep the communication lines open.

Keeping accounts current requires constant communication. If a customer knows they won’t hear from you for a month, they’re more likely to miss a payment. It’s important to find ways to break through the ice, and connect — or reconnect — with your customers on a personal level. And if all else fails, at least you tried. At least you showed compassion. You took an extra mile for the customer. Don’t give up. 

Watch: How to Build a Better Credit – Customer Relationship

3. Seek common ground.

At the end of the day, you and your customers are partners. You depend on each other’s success. It can be hard to put your ego aside and get a delinquent customer to communicate openly. When you get your customer finally talking with you, lay down your cards. Transparency builds trust. 

4. Be clear and set expectations. 

As a credit professional, you are there to make it easy for the customer to pay you. But it’s not always going to be easy. Allow some space for some setbacks – it may or may not happen but don’t lose sight of your goal.

I took a risk with my customer. We both made sacrifices to ensure the deal succeeded, and we were fortunate that it did. My company got paid. And best of all, I still have him as my customer.