When looking at how to collect from clients, you should assess two factors: the true risk of not getting paid and also understand the relative profitability (or lack thereof, sometimes) of the customer. These two factors will show you that not every client deserves the love that they get. In an article for ProSales, Scott Simpson explains the importance of pulling credit three times a year and looking at relevant trends. Simpson suggests that there are obvious warning signs to look for, such as delinquent accounts with other dealers.
To understand the true profitability, go beyond looking at gross profit dollars to factor in a customer’s share of your delivery, administrative, borrowing, inventory and other costs. It’s important to recognize that someone regularly paying you slowly could be costing you 2%-4% more than your average customer.