Robbing Peter to Pay Paul… and I’m Not Paul – Michael Dennis, CBF

I'm Not Paul

A recent CMA Poll asked this question: “When do you consider placing an account with a third party for collection.” I was surprised that the customer action that was the second lowest reason for placing an account for collection was: “When the debtor is paying other creditors but is not paying my company.”

The fact that an account is past due is unlikely to be the catalyst for me placing the account for collection. If it were, I would simply create a rule stating that any account more than xxx days past due should be placed for collection. Also, I have developed a certain tolerance for the fact that customers make and then break commitments because it occurs so frequently, and I expect that some customers that dig themselves into a financial pit will stop communicating with me while they try to claw their way out.

To me, knowing the debtor is paying other creditors but is not paying us is far more important than if the customer has broken payment commitments. In my opinion, it is far more important than the account being past due. I think it is even more important that the fact that the debtor has stopped communicating with me.

Consider this question: How would you explain to your manager that you knew a seriously delinquent debtor was paying other creditors including your competitors, but not your company, and you decided to take no action? I cannot think of a reason, explanation or excuse to explain this inaction because money that could and should have been sent to us was used to pay other creditors, and in my opinion this is unacceptable.

Michael Dennis, CBF

What do you think? Opposing arguments are always welcomed.

Michael Dennis’ Covering Credit Commentary. Michael’s website is

The opinions presented are those of the author.  The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors.  Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.

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6 Replies to “Robbing Peter to Pay Paul… and I’m Not Paul – Michael Dennis, CBF”

  1. In your example, the customer is illustrating exactly the point we as vendors attempt to drive home to our customers – – we are not a bank. A bank loans funds to pay others but they charge interest and typically have security for this debt. We hold unsecured debt and it is unacceptable for this customer to use the proceeds from goods they “bought” from us and resold (at a profit) as interest-free money to buy more goods elsewhere.

  2. Totally agree with Guy but unfortunately as the cash flow’s tighten especially in seasonal businesses it’s the norm. Customers will only pay those vendors whose product is selling and is in demand. They will use other vendors money to release new “paid” customer orders.
    This is a prime example why all manufacturers should be part of their trade credit group to have immediate information on hand at all times to watch for payment trends around their industry!

  3. I agree with Anne. Creditors need to know how debtors are paying other suppliers, and one of the best sources of this data are industry credit groups. Without this information, it is difficult to know when to draw their line in the sand with delinquent accounts.

    If your company has found that your industry credit group provides helpful insights about your customers and about applicants, perhaps it would be worthwhile to find out if there are other trade credit groups your company could join.

    Don’t get me wrong – I am not suggesting leaving one group for another. Instead, I am suggesting the possibility that joining two industry credir groups could double the benefits of membership in a single credit group.

  4. I agree Michael. If you don’t know that other creditors are being paid and your company is not, it is hard to make the decision to pull the trigger, or even to escalate your efforts to get paid. Good points. Thank you.

  5. Michael,

    I disagree to the extent that I think it might not be a good decision to give authority to every collector to escalate beyond the customer’s Controller to collect an outstanding balance. That is just my opinion.

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