There’s an old saying in business, “Nothing happens until somebody makes a sale!” This is true, of course, and so is this corollary: “Nothing happens with cash flow until the building materials customer pays the bill.”
Cash flow is the lifeblood of the building materials industry. Sometimes a business with a full order book and a large accounts receivable position will be forced to close its doors because there wasn’t enough cash on hand to pay the bills that are due now.
This is why it’s just good business to have a company credit policy at a building materials center. As somebody said, “If there’s no plan, there’s no hope for survival.” This raises the question: how do you create a credit policy?
Establishing a Credit Policy at a Building Materials Center
Start with the basics. First, determine the criteria needed to determine which customers must pay cash in advance and which ones will have extended credit. Second, set the terms of payment for those who will be billed in the future for products and services delivered now. Third, define the limits for outstanding accounts receivable before starting collection efforts. And last, document the procedures used to collect delinquent accounts.
When you extend credit, it makes it easier for your customers to buy. This will maximize revenue for your building supply center. But at some point, people will buy the product that they want, knowing that they don’t have enough cash on hand to pay for it. Setting a credit policy means drawing a line between those customers who have the financial capacity to pay, and those who have not or cannot demonstrate the financial capacity to pay.
Determining Which Customers Get Credit
When you are dealing with a business such as a building contractor, you can get the information you need from a credit report. Most small construction companies will not have audited financial statements, but you can order a credit report on an individual such as an owner. For instance, Experian will provide a prospective customer’s credit report, which includes public records, hard inquiries, and the payment history on their credit accounts. It provides a credit score based on public records, such as bankruptcies, state and county court records, tax liens, monetary judgments, etc. It also reports payment history on all real estate, installment, and revolving credit accounts. Here is how it works.
You create an account on Experian Connect at no cost to you. Your customer is the one who purchases the report ($14.95 for 30 days of access) to share with you. You complete a credit check request form, and you will get your customer’s credit report. Sounds pretty easy to me.
CrossCheck Is the Alternative to Financing
Building materials centers are one of the largest merchant categories at CrossCheck (the others being automotive retail and home furnishings dealers).
In construction, it takes a large number of suppliers to provide all the materials needed to build or remodel a house. The contractor is usually on site supervising the workers, and does not have time to drive all over town to pick up supplies or the ability to transport them. This means the builder will typically call the supplier and order what they need over the phone or via email, and pay after delivery by mailing a check.
If you are a building supply center selling $10,000 worth of roofing materials, you do not want to get paid with a rewards card that will cost you 3% in interchange fees, which would be $300, when you can simply deposit and clear a check for less than a dollar!
If you have not given your client a line of credit, then they will be on what is typically called “Cash In Advance.” This would be difficult for the client to comply with, but fortunately CrossCheck has a solution: the Check on Delivery service (COD).
Check on Delivery Is the Solution
With COD, you get pre-authorization from CrossCheck to guarantee the payment before you deliver the goods. All you need is the name of the business, a phone number and the estimated dollar amount. You can submit the request via telephone, POS terminal, or PC. The delivery driver simply picks up the check after dropping off the order.
Back at the office, check data is captured with desktop imagers and sent to CrossCheck with the final amount and check number. The payment is now guaranteed by CrossCheck.
Check on Delivery is also a money-maker at car dealerships. Since many parts not are reproduced in the aftermarket, independent repair and body shops must purchase them from factory franchise dealers.
To repair a car damaged in a collision, for example, it would not be unusual for a body shop to order $10,000 worth of parts from a dealership. The shops work under tight deadlines, so they need the parts now. In this instance, COD streamlines the order process and quickly gets the parts to the shop without the dealer running a credit check or worrying about a bounced check.
CrossCheck’s Check on Delivery is a win-win for building materials centers as well as auto dealership parts departments. It makes it easy to accept payments and manage the risk at the lowest possible cost, and it makes it easy for the buyer to make a payment.
Finally, most B2B payments continue to be check-based because checks are easy to write and easy to reconcile in accounting systems. Furthermore, they carry a lot of important data which can be matched to the invoice.
Download our free guide to learn how Check on Delivery can help your business increase sales and mitigate risk while saving time and money.