When to fire your biggest account is probably the toughest decision to make.
For years a concrete block manufacturer in a large metropolitan area had supplied block to the city’s largest mason contractor. This contractor had a monthly receivable on the books on average $250,000 – $300,000. The company had a delivery fleet of 37 block trucks. First delivery within the metropolitan area required a first delivery charge of an extra $100 per truck. There was also a $75 per hour demurrage charge for being held up to deliver on the job site, sometimes as long as 2 hours. This was the norm for this account. The sales manager years ago had decided to drop all these extra charges to this customer because it was such a big account. The block company had high transportation costs due to tolls, heavy traffic and using an older fleet.
3 – 4 trucks were in the company’s own shop that had 3 mechanics working on all the repairs. After our team went in and did our due diligence a metrics formula was derived to measure all the inputs. Included in the metrics were how much any other customer would have paid, average days on receivables and how many deliveries were not delivered each day and had to be pushed off. This was a mathematical formula measuring facts only.
After 30 days the facts were very clear.
172 truck loads, $17,000 not charged for early delivery – $14,400 not charged for waiting time – that month = $31,400 not charged to customer when multiplied by 12 months total is $376,800 per year not charged.
74 days was the average receivable for the customer. The total invoicing for the 30 days was $258,000.
Average amount on receivables was $645,000.
Bankrolling the customer for $645,000 on the books and not charging $376,000 per year NEEDS to be addressed.
Identify the issue
Our team looks at all aspects of your business. Starting with the obvious and drilling down into all of the inputs.
Measure the issue
After all the facts and numbers are gathered our team will formulate metrics that are understandable.
Plan and Implement
We will draw up a detailed plan, layout and train all staff. You have a level of comfort with all the documentation for continued success.
How was it addressed? Solutions…..
Our team came up with a few solutions.
First we needed to fix the communication problem between all the managers. Sales manager, accounting manager, general manager and ownership. A decision was made years prior by the previous sales manager and never addressed since. 3 metrics charts were designed one for sales, one for accounting and one for dispatch. Every Monday at 8 am these charts were presented to each other and the general manager and owners.
Second we had the general manager and sales manager approach the customer and work out a solution to not allow their account to go over 15 days.
Third all trucks for first delivery would pay a premium of not $100 but $75 and only one delivery first thing in the morning would not be charged the premium.
Fourth if the account is not brought into this agreement within 30 days our legal team was to begin proceedings.
Conclusion that worked for about 2 months. The owner with the roadmap our team put together watched all his metrics and came to the conclusion to let the customer go to a smaller competitor. One year to the day the competition filed for bankruptcy protection.