Balancing customer payments

As far as I know, the time payment business model only exists in the mobile tool world. The ability to break down a purchase into weekly payments sets us apart from the majority of other business owners. Though niche, it remains as relevant in this online world today as it was when it was first started decades ago. However, even well-established dealers can find themselves struggling with an out-of-control time payment turn.

My start with time payments 

I entered the tool world in 1998. At the time, the flag I was with was not opening any new routes in the way of their traditional owner-operator routes. The only way to become a dealer was as an employee. Little did I know that it would prove to be the best training I could have received prior to owning my own tool business. The compensation was primarily commission with a small base salary. Commission wasn't achieved from sales; instead, it was primarily based on collections. The commissions were based on a matrix of time payments and inventory turns. It topped at 20 percent from collections over $5,000 (providing you maintained a five-week turn), which would be equivalent to $10,000 in collections at today's money value. There was also a 10 percent commission for contract sales and collection, but the primary commission was based on time payment collections. Needless to say, the experience taught me how to run an efficient time payment business.

What makes an efficient time payment business?

Most distributors won't have the same experience I did starting out, so what is an efficient time payment business? For years, it has been based on a five-week turn. It's not unusual for successful dealers to have six digits "on the street." A five-week turn on $100,000 would equate to
$20,000 in weekly collections. Some flags now set a goal for a 7.5-week turn, but that would bring the week's collection down to $13,300. That's a difference of $6,700!

Other dealers are content with a 10-week turn. Some flags also focus on the percentage of customers collected from each week. I personally was never too concerned with that number. There are a lot of customers who pay bi-weekly, and that skews the collection percentage. You, as the dealer, are solely responsible for the time payment turn of your business. If your turn is out of control, it's not your customer's fault. It's up to you to renegotiate the terms every time you make a sale. You have to set and enforce those terms.

How to regain control of your time payments?

First, here's what not to do. Don't leave your truck at home and go on a collections-only mission. Your job is to sell tools, and if you're not out on your tool truck selling, your competition is. Hopefully, you've built a purchase average large enough to get a weekly discount. You never want to do anything to reduce your purchase average. Most customers have been around long enough to know that a collection-only visit is a bad sign. Don't sing the blues about how slow collections and/or sales have been. Customers want to know their dealer is here for the long term.

I found that politely explaining tool truck math to my customers helped to educate them on the importance of weekly collections. Most simply didn't realize the amount of weekly cash flow needed to run a successful truck. I emphasized how proud I was to offer a fully stocked tool truck. I'd explain that, along with the inventory on the truck, there's also a significant inventory in the 200-plus customers' toolbox drawers that I'm "carrying" to allow for a reasonable weekly payment. When I'd tell customers, my weekly tool bill ranges from $10,000 to $30,000 a week, their jaws would drop.

Developing a time payment plan

To develop a plan, print your weekly route sheets, identify your customers with the highest balances, and focus on those. Never discuss a customer's balance in front of any of their co-workers. It's a private matter that needs to be respected. I found most customers are understanding when you approach their balance issues, provided you are flexible and offer possible solutions.

If you're with a flag, the most obvious solution is to open, or rollover, the balance to the tool company's financing program. It's a great solution to help your customer lower weekly payments while taking high balances off your time payment portfolio. Unfortunately, independent dealers can't offer that solution. It also makes time payment turns more problematic for them. Without a financing option, independents are forced to carry all purchases on a time payment account.

In this case, always put the blame on yourself. "I'm sorry, but I oversold you." Offer to take some of the tools back, or see if the customer might have other tools they no longer use that you could take in to trade to reduce their balance. Another simple solution is to run a contest based on collections. Make the prize or prizes substantial to ensure success. I've used TV's, BBQ's, game consoles, Cabela's, or Visa gift cards. One time, using a $500 Visa gift card, the winning customer used it to pay down his balance. It wasn't a net gain since my own money paid down his balance, but the contest increased my overall time payment collections and made a substantial reduction to my time payment balances.

A side note — always use the customer's account number and not their name on the tickets. Also, have the drawing in a large shop with plenty of observers. Customers need to know your contests are fair.

A bad deal is worse than no deal

I've seen dealers get into financial trouble by allowing customers to make big-ticket purchases on their time payment accounts. It usually happens when the customer doesn't qualify for the tool company's financing. Usually, if your customer is turned down by your flag's credit department, there are good reasons. Too many dealers will go ahead and make that toolbox sale and carry the balance on the truck when the applicant is turned down. Customers with $500 balances carry far less risk than customers with $5,000 balances. Always remember, a bad deal is worse than no deal.

At the end of the day, managing time payments comes down to discipline, communication, and knowing when to walk away from the wrong sale. Whether you're a new dealer or a seasoned veteran, staying proactive with collections and setting clear expectations will help ensure your tool truck remains profitable for the long haul.