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Credit Manager Expert Reveals Top 3 Best Kept Secrets for Success

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Experts in this video

Allan Francis
Allan Francis

A major challenge in construction, more than any other industry, is getting paid. That’s why having effective credit policies and practices is so important.

Watch Allan Francis, a 30 year veteran in construction credit management, share his top 3 hidden hacks for successful credit operations.

You’ll hear:

  • What to keep an eye out for when choosing your customer
  • How to get to know your customer better
  • Who to know when taking on a new project


Speaker 1 (00:04):
Funny thing about money is, is human humans have the most awkward relationship with money. Don’t they? From the time where you don’t talk about money, mom and dad, you never ask people how much they make and you never, you never talk price. And we, we get to a car dealership. Car dealerships are ridiculous. The, the dance that you have to do to buy a car, the, the things you have to do to buy a house. So we have to realize that, that we have to meet people where they are when we do business with them, because they have an awkward feeling about money. They’re embarrassed. If they don’t have any, they, they want to talk that they’re bigger than they are. They want to have more than the next sky that relates to everything going into construction, law and everything else. It’s all about getting paid. And we have to get through that and meet people where they are. So Tyler gonna be calling on you in a second? Not yet. Okay. But you’re a friend of mine and I’m gonna need you. I, I really like, do you have another line

Speaker 2 (01:01):

Speaker 1 (01:02):
Yeah. Can I buy that from you? Would you mind? Okay, Tyler, I like this pen. I wanna buy it from her. And I know you borrowed money to get some, to make this work. So anyway, would you pay her $5 for that for me, please?

Speaker 2 (01:15):
You got it.

Speaker 1 (01:16):
This is a great pen. I really like this pen.

Speaker 2 (01:23):
Thank you.

Speaker 1 (01:25):
And she has something I want give her a hundred. No, I’m just kidding. This may seem like a silly example,

Speaker 2 (01:34):
Tyler. Yes.

Speaker 1 (01:36):
Why on earth? Would you give me $5 when I just ask you for it? Not really knowing what I’m gonna do with it. I didn’t really give you an idea of what we were doing. Why would you do that?

Speaker 2 (01:45):
I dunno. He seemed like a good guy.

Speaker 1 (01:48):
Seemed like a good guy. Yeah. We’re close friends. We’ve known each other for less than a year. Yep. We probably had 25 conversations or less correct.

Speaker 2 (01:56):
He told him to do it in front of. I told you,

Speaker 1 (02:01):
I told you to do it in front of everybody. Were you gonna say, had you said no. After we prompted you prior to this whole thing, starting the peer pressure was amazing.

Speaker 2 (02:11):
It was,

Speaker 1 (02:12):
I got what I wanted. I got her pen. I did a good job. I owe you $5. When am I paying you back?

Speaker 2 (02:19):
Yeah, totally soon the letter.

Speaker 1 (02:21):
But when do you know for sure? I did not. Why is that

Speaker 2 (02:25):

Speaker 1 (02:25):
Why on earth? Would you give me $5 with no, no expectation of when you’re gonna get paid back. Worst case scenario, you got that money from somebody else, right? Yep. Because we worked this out beforehand to make it all fun. He’s not even, he’s not in the room. So he doesn’t even know how bad it is for him.

Speaker 2 (02:41):

Speaker 1 (02:42):
Do you understand what we’re doing here? It’s that awkward relationship. I put him in a situation where he had to give me the money. At least his brain told him he had to give me the money. No, you did not come all this way to have a psychology lecture.

Speaker 1 (02:56):
But this is the way you learn how to deal with people that owe you money because they use psychology against you. We’re going to use psychology, not against them, but to help them squeaky wheel, get the grease. We’re gonna make these people love us so much. Our customers love us so much that they wanna make us happy. That’s where that’s where we’re, we’re headed to. They want to make it work. So in order for us to do that, we need to know who our customer is because honestly, in my opinion, Texas lean law got a lot easier in a way. And it it’s, it’s taken some steps. There’s a few things that changed that went backwards a little bit, but isn’t the overall concept of this whole thing is to not get here. You really don’t want to get to where you’re having to you, you start having discussions about filing leads against your customers and their GC and their homeowner or the property owner.

Speaker 1 (03:53):
That relationship is tenuous at best. It’s not gonna last very long and you’re probably not gonna do multiple projects. What we do know is in the construction field and everything else, that pool of customers is only this big. So what we’re gonna talk about today and what we’re gonna have a round table discussion about is I want each person at a table to think of your number one customer, Robin. Okay. Thank you Robin. So Robin says her, her most important customer, great sales, great credit you know them well, you know their credit. Well, they tend to pay on time. Think of your now your least favorite customer. I know you know who they are. There’s probably five or six of those as well. Why are they your least favorite customer? And it may seem counterintuitive. You may say, well, obviously, cuz they don’t pay well, other than that, why are they not a good customer? What is it about that? Not paying well causes you the most problem just in the way you deal with it. Anybody

Speaker 2 (04:48):
High mainten, high maintenance,

Speaker 1 (04:50):
High maintenance spending a lot of time,

Speaker 2 (04:54):
Lack of

Speaker 1 (04:55):
Lack of communication like that. How did you get stuck with your good customer? Where did that customer come from?

Speaker 2 (05:03):

Speaker 1 (05:04):
Yeah. Best salesman,

Speaker 2 (05:06):
Direct relationship with our owner.

Speaker 1 (05:08):
Direct relationship with the owner similar. So that’s gonna be, that’s gonna be common thread. Now the fun question. How did you get stuck with that guy? That guy, whoever it was that just doesn’t tell you the truth. I found y’all

Speaker 2 (05:24):
On Google,

Speaker 1 (05:27):
The best sales to, we don’t need Hoovers. We’ll go to Google. Sometimes we get stuck with who we don’t want. It’s not our decision. We just get stuck with them. And now we have to decide how we want to handle them. We always worry about those customers that you’re stuck with them. It’s like, what am I gonna do with them? What if we took them back? And it’s like, you know what? I have to deal with you now. I want to get to know you better. How many of you have credit applications and a form credit application? Where did it, where did it come from? How was it written? I’ll be honest with you. I’ve worked for a couple of companies. And I said, well, where did we get this credit application? It looks like great policies. Well, I went on Google

Speaker 1 (06:11):
And I saw, you know, Microsoft does quite a bit of business. So I went to one of their contracts and I kind of cut and pasted everything. They didn’t care that the finance rate would be USY in like five different states or anything else. They didn’t care about any of those things. If they just cut and paste something together, that was one size fits all. Didn’t meet the, the requirements of what they needed. And they were getting hamstrung by things like jurisdiction. You know, this poor company, one time they, they literally were using somebody else’s credit policy, never read through it. And there was a clause in it that everything had to be done through the courts in a, a state that was 10 states away. And boy, they were really surprised. They finally filed, filed suit and they had to file suit in West Virginia.

Speaker 1 (06:55):
It was, it was something they had no idea. The jurisdiction that they were dealing with was not even to stay close to them. So let’s go backwards. Let’s get to know our customer. Every time you do CU business with somebody. If you don’t know them, even if you’ve been doing business with them and they’re gonna kick back a little bit, find a reason to get to know who the customer is, who the owner is. Do a little digging. If you have to take ’em out to dinner, if you have to have a, you know, Hey, let’s just have a phone call and suddenly get all the information you need. So many times we get in situations, we don’t know the email address of the, of the owner. We don’t even know the full name. We haven’t checked the secretary of state. So use a credit application.

Speaker 1 (07:40):
Even if it’s a customer that’s already existing, Hey, Hey, we wanna update our Sy our information, send them out, send them out a new credit application. They’re not going to fill it all out. Tell ’em to fill it out as best they possibly can, but going forward, know your customer and have a credit application, have an attorney look at it. Well, I really don’t want to hire attorney. That’s a lot of money. So you don’t spend $500,000 and it ends up costing you in your first project. When it all goes down, spend that extra time to have a credit application that works for you. That has everything in it that you need to know everything about the owner principles. Number of principles, how they’re in core, how long they’ve been in business. What’s the famous phrase. You trust people, but then you verify, you have them fill out a credit application.

Speaker 1 (08:33):
You ask for three references, who are they gonna give you? And I realize a lot of this is common sense. And I’m telling you things that are common sense, but we still will have problems. So who are they gonna give you? Those three references are gonna be people either they’ve done business with or their friends, or they’re gonna give you a fake cell phone number or, you know, we’ve all run into those type of people. Gradually, you’re getting a picture of who you’re doing business with. So if you want to avoid these things, get to know your customer, know, know exactly what type of business they’re in. Every time you have a project with them, is this the type of business they normally do now? Let’s know your project. How many projects do you do? 1,003 thousand. Okay. How many companies use job sheets?

Speaker 2 (09:22):

Speaker 1 (09:29):
What is the importance of a job sheet?

Speaker 3 (09:36):
What kinda job

Speaker 2 (09:37):

Speaker 1 (09:37):
This? Knowing all your players. So once you have a, once you have a credit application in place, which tells you everything about your customer. Now they’re gonna come to you with a project,

Speaker 1 (09:48):
Have a job sheet or a project sheet and make sure they’re the ones that fill it out off your sales. People will want to help that along. And by the way, I know I have sales people to even work for me or work with me, not for me that work with me that are gonna throw things at me. It’s great to be helpful. It really is, but nobody knows the job better than the customer themselves. Make them fill out that job sheet. That way they can tell you who all the players are. Who’s your general contractor gonna be? Is their bank financing involved? And if they won’t give it to you find out that information, because the more people in that payment chain, the more likely you’re gonna get paid quicker and faster. You have more people to talk to. Now here’s a question They of all your customers that you deal with on a regular basis, good ones, bad ones, Name three in this volunteer name, three of your account, pay people that you go to that sign a check that pay you, name their name, give me their names there, personal names or how many people know who their accounts payable contact is at the, at your customers. Okay? You, you know them, is that important?

Speaker 2 (11:05):

Speaker 1 (11:06):
That’s the person that, that that’s the person that knows when things happen. Make sure you always have that. So many times a number of customers that we talk to, Hey, who’s accounts payable. Contact will just send it to AP at,

Speaker 1 (11:20):
Or we just let her go or we just let him go or just send it to anybody in accounting. You need better information than that. You need to know who your players are at that company. You need to know who the CFO is. And you’re thinking, I just, you know, I have so many other things to do. I don’t really have time to do that. You’re saving yourself time down the road. So just knowing your players in the project, knowing who your GC is, who their accounts payable person is, how many people have gone into a job and you asked the customer, is it a public or private job? And they couldn’t even answer that. Find out what the job is exactly what the scope of the job is. And then the number one thing that got brought up before, somewhere on that project sheet and what we require is I want the original contract amount, something that shows me what the original contract for the whole thing.

Speaker 1 (12:08):
They may be only getting $20,000 worth of materials for me. But I want to know it’s a 1.2 million job. I need to know what the scope of that job is and what, whether it’s in phases or any of those things do, are you getting that information? That’s very important because timeframe, here’s another thing you get into a contract that there’s a customer in the all and your, how many of your customers ask for deposits from their customers, anybody more in residential, but usually you get a residential they’ll ask for, okay, you need 10% down before we’re gonna start the work. What do they do with that deposit money? That’s an important question to ask, what are they doing? What are they doing with, with your materials and where are they being delivered to? If you’re delivering materials, where are those materials going? Are they sitting in a warehouse off site?

Speaker 1 (13:00):
Are they eventually gonna be delivered to the job? Is there a chain of custody of the materials we found out really quick doing what we do that that chain of custody is very important, very, very easy, very easy to slip up and then lose all the possibility of filing a lie. So, so the next thing that we want to do is we want you to know where you are in the process and it may be fairly simple. Okay, we’re a supplier. This is where we are, but you may not be completely aware of exactly where you are in the food chain of how things are gonna get paid. So good example of this is you come into a project and the project’s huge. It might be a $3 million project and they’re ordering $30,000 worth of materials. Well, obviously there’s going to be more materials than that.

Speaker 1 (13:53):
On that job. You, you need to find out what other suppliers are gonna be on that job. Otherwise, you’re, you’re gonna put yourself, you could be far down the list of the people taking care of. How do you monitor your projects? Anybody project gets started. How do you monitor it? How do you know how far along in the project it is? How many times have you ever been stuck in a situation where of the project ended and you weren’t aware of it that used to that happens in electrical all the time. Cuz I used to be a credit manager for electrical and since electrical sometimes is the last thing that happens that gets done. There’s a couple of finishing things happen. The job ends. Nobody’s told you anything about it. And the job has been done for 30 days. Always important to maintain contact with your project manager, know who your project manager is, even at the GC level.

Speaker 1 (14:45):
So you know how far along that that job is and when the final deliverables have been made and when the project is completed so that you know where you are and you know who you are in that project timeline. And I won’t take up too much more of your time. So here we go. Another thing that the job sheet’s gonna tell you that we didn’t talk about and I skipped over that is job location important to know your job location specifically, if it is in the middle of a field GPS coordinates, you’ve got to know where your job is, where your materials are being delivered to why they’re being delivered when they’re being delivered. And when they’re going to be used, you don’t wanna send lumber over six months in advance of their use. Obviously that’s gonna run you into a problem. You’re gonna get either ruin into materials.

Speaker 1 (15:35):
The invoices are gonna generate too quick. You’re gonna have a GC telling you or your customer telling you, well, I can’t pay for ’em yet because we’re not into the project far enough. So just know more about when and where your materials are being sent to. Now, the final thing that we’ll get into is preliminary notices. This second notice that we talked about in here is obviously very important, but something just a good standard business practice file, a preliminary notice. It just tells people that you’re on the job. You’ll have a lot of people. A lot of your customers will say, no, no, I don’t want you to send anything to anybody that’s involved in my project. But those preliminary notices, the only thing that they do and the way they help you is you’re telling everybody there that you’re now on the job and they’re aware of, of who you are and what you are and what you’ve done.

Speaker 1 (16:17):
And that will protect you in the long run so that when it gets down to the end, the owner and or the GC knows who they have to pay. What we kind of mentioned to before what I’ve seen UN inexperienced and unlicensed general tractors coming into the market, stealing labor. Yes. You’ve got people. They start up overnight. They don’t get their licenses. They hire your labor to do their work labor that you could possibly use. They might pay. ’em A few dollars more. Of course they can because they’re overheads less, cuz they’re not licensed to anything else they’re stealing from your labor market. That is a real problem. And now that we’ve got all this infrastructure money coming in, there’s nobody there to police it because perfect. I don’t care what your politics are in perfect bureaucracy fashion. We send out the money and then we write the regulations.

Speaker 1 (17:07):
Huh? And then where did the, where did all the money go? Time and time again, Katrina. Any of the disasters that happen now we’re fixing bridges all over the place. We send the money out and then we write the legislation to follow it up, to try to find track where the money goes. Finally, who you do business with is important. But sometimes you miss a good opportunity. People walk in your door, somebody walks in. Or how many times have you ever judged somebody based on spec? They, they walk in your door. They might walk in, might walk into your counter. If you’re in, if you’re in a situation, you’re a supply house, they might walk into your counter. And you’re like, eh, he drove in a big, beat up Ford pickup. Doesn’t look like he’s dressed. You know, he’s dressed in kind of a suit and tie doesn’t really look like he works out in the field or anything else.

Speaker 1 (18:00):
Or you just make that preconceived notion about an individual or a customer that walks in the door or you see a credit application and based on they live or what they do, you make these preconceived notions about them before they really get a chance to do business with you. So here’s what you need to do understand that every person needs an opportunity to prove themselves, but not on the backs of your money. So walk to every customer that walks in your door, give them the opportunity to tell their story and try to develop those new lasting relationships. They’re going to pay off in the future because you’re gonna find that diamond in the rough good example. We had a customer that just started his program. He, he had been in H V a C in the past. He’d been with another company for 10 years.

Speaker 1 (18:53):
He just needed someone to help him with his supplies. And now he became one of the fastest growing general contractors in the H V a C in the Las Vegas area, just giving the right people the chance and not judging people on spec is still very important. And the reason I end with that is because sometimes all the negativity that I bring up would talk about, can these people to pay you? You can’t overlook the fact that there’s still great people out there still great people doing work, and we need to give them the opportunity to do that. So that’s about all I have. If anybody has any questions, let me know. And thank you very much, Laura.