Large amounts of outstanding debt can have a significant impact on just about any business, but some companies are better equipped to weather the storm of a cash flow shortage than others. Unfortunately for many manufacturers, they do not find themselves operating in one of those businesses.
In the manufacturing world, just about everything needs to go right for a company to turn a profit. And even the slightest hiccup in the payment process can create a tragic domino effect that ends with the company losing its business before many of its employees even realize what is happening.
Let’s take a few minutes to work through the domino effect of debt collection in the manufacturing world so that you can see for yourself just how important it is to stay on top of all of your collection responsibilities.
Domino #1: Customers Fall Behind on Payments
The first step in the domino effect starts when the customers that have always been responsible about making their payments on time suddenly start to fall behind on those responsibilities. Many times, this is the result of a dip in the economy or other unforeseen circumstances.
But no matter what the cause, the result is always the same. And that result is that the manufacturer that the customer owes gets shortchanged on the payment for product that has already been delivered.
Domino #2: Manufacturer Cuts Their Ordering
As a response to a suddenly reduced amount of cash flow coming into the business, most manufacturing managers will elect to cut back on the ordering of the raw materials that they need to create their products.
In many cases, this starts out as just keeping a little less inventory on hand. And many managers will tell themselves that cutting back on stock is something that they wanted to do anyway.
Domino #3: Inventory Shortages Begin to Arise
But as the problem persists, having a little less inventory on hand will suddenly turn into shortages of key materials that will hold up the entire manufacturing process and create all kinds of production issues.
Naturally, these production issues from having too little raw material inventory lead to a lack of finished product inventory that is ready to go out for sale.
Domino #4: Customers are Unable to Get Products
Once the manufacturing production is held up and the finished product inventory slips, it is only a matter of time before the manufacturing company is not able to meet order deadlines for their customers.
No matter what type of product we are talking about, the company can’t make any money on it if they don’t have any available for their customers.
Domino #5: Company Dies a Slow, Painful Death
The typical response from a customer that is unable to get product from a manufacturing company is for that customer to search out an alternative manufacturing company from which to source their products.
And if the new manufacturing company is better positioned to service the customer, our original company will never be able to win back the business that it just lost.
In order to prevent this type of domino effect from happening in your own manufacturing company, it is absolutely critical that you stay on top of all of your accounts receivable to make sure that no one is falling behind on their obligations.
And one of the best ways to do just that is to partner with a quality commercial debt collection agency like Direct Recovery to handle those collections on your behalf.