We are taught profit follows risk. We take risks in order to maximize our profits. But in the world of debt collection does profit really follow risk?
Take for example a very good friend who is in the furniture business. He’s been selling to the same overseas client for over a year now. The terms have always been: 50% upon order, the other 50% prior to shipment. Payments have been regular, without a hitch and the relationship profitable.
The UK client wishes to continue to do business with my furniture dealer friend but only if the dealer will agree to different terms. The revised terms would have the dealer ship without payment of approximately 50% of the balance.
Although eager to continue a traditionally profitable relationship, a sudden change in terms which provides for far too much risk may cause the dealer to lose more than just his profit margin. Here, with a 30% mark up on the goods, if not paid, the dealer will lose his profit and some of the cost of the goods. If the order is sizable, well, you know…
A sudden change in terms should set off an alarm. The vendor should take a pause and immediately ask the customer some questions about why the need for a change in terms.
After speaking with the client, and rechecking the credit worthiness of the customer, the dealer should calculate his break even point before agreeing to the customer’s request. In addition, the dealer must understand what he will need to do to collect any unpaid monies from the overseas customer and the costs associated with debt collection.
If profit follows risk, make sure that you understand all the costs associated with the risk.
As members of the international Association of Commercial Collectors, we are privy to information and relationships with collection attorneys worldwide. If you are doing business, please let us help you understand the steps needed and costs associated with getting paid from your customer.
For a free consultation or to place a claim, contact FFGN by email, or call 212-686-0100 ext. 12.
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