Counting Our Beans in a Bad Economy

Posted 12/10/2009
By Chris "Chubby" Frederick

2009 has come to an end (almost)! How are your financials looking? One way to assess them is to look at your payables and receivables. That will usually determine if you're riding a wave of opportunity or if you're crushed and overwhelmed in a sea of debt.

Payables are funds you owe and would pay to vendors. Payables are not complicated and in the grand scheme of things most of us do not have great issues in staying current. Most of us understand that if we fall behind or fail to pay our bills, we damage vendor relationships and create doubt about the viability of our business. As a result of getting behind on our payments, we immediately create concern about our credit worthiness and impede our ability to borrow.

It is always important to stay current with our receivables but in an economic crunch such as we are in right now, paying your bills on time is critical. The best advice I can give is to stay current and pay your bills when they are due. Any business needs the flexibility to borrow from time to time to cover an unexpected expense, and it is vital that you protect your credit worthiness by keeping your payables current.

When times are good, any bank looking at your receivables, especially if they are reasonably current, would consider them an asset and a decided plus in determining to approve a loan or line of credit. In the current economy, receivables will be closely scrutinized. Any pattern of delinquency among your receivables would certainly be noted and would be grounds for the withholding of credit and the turning down of loan applications. More important are the viability of your business and the thickness of your wallet.

When customers fail to live up to their obligations to pay and pay by a specified date, they immediately impact your ability to live up to your obligations and your ability to pay your bills. That asset quickly turns to a liability when customers go from the current column into the past due. Unfortunately, this misfortune immediately impacts you and reflects on you. Over the years I have known many good bookkeepers, accounting managers and CFOs. Among the very best were individuals who were tight in their credit policies. As a result, there were occasional angry interactions when an individual would fall behind, with the usual indignation that "after these many years you put me on Collect on Delivery (COD)!"

Nearly all of these people would find a way to get current and nearly all of them would avoid a repeat performance, knowing the brick wall they were up against. If your receivables are out of control, it doesn't matter the sales or market share or quality of your product or work. The future and viability of your business is in the hands of others as long as your customers are falling behind. This exposes you and your business to a poor credit rating and all that would go with it. Don't let your receivables issues - with a few cash-short customers - translate into payables problems for you. Love your customers and even occasionally be flexible with payments and credit if the circumstances are right. But you must control and monitor those purse strings to thrive ... especially in this "bad" economy.

Between your receivables and your payables lies the product of your company. Very typically you have put in a lifetime's worth of effort into your business and take justifiable pride in all that you have accomplished. Operationally, you run a great shop, have hired well over the years, are productive and generate a nice profit every month. All of that work will not matter if you do not establish a clear and fairly strict policy with your receivables and only if you are paying attention to your payables. Of course, you already know this after having been in business all of these years.

A trickle of financial concern can turn into a sea of debt. Protecting all that you have worked for need not be more complicated than living a little more closely to the great procedures you already have. Most important in all of this is just verifying where you are with those payables and receivables and then doing something about it if the view is less than you had hoped for.

Editor's note: This article is one of several management articles that have been contributed to AutoInc. this year by Automotive Management Institute (AMI) instructors. In 2010, AMI's knowledgeable instructors will continue covering a variety of topics designed to educate and train today's service and repair professional in AutoInc. To learn more about AMI, its courses and instructors, visit www.AMIonline.org.

Chris "Chubby" Frederick is president and CEO of the Automotive Training Institute (www.autotraining.net), a training and consulting company to the independent service provider. He began his career in the automotive equipment business in 1971 and founded ATI in 1974. During the past 35 years, ATI's 80-plus associates have helped more than 25,000 shop owners improve their profitability and business performance..