Editor’s Note: This piece is part of our “Executive Input” blog series sponsored by Capital One Trade Credit that extracts key takeaways from short interviews with distribution executives — often answering three straightforward questions about challenges they are trying to solve with technology. These leaders could opt to have their name and company omitted from the blog to speak freely. Keep an eye out for more to come.

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One thing Americans can agree on these days about the nation’s behemoth government is that it’s very good at spending money. So naturally, distributors are attracted to government contracts and related spending, but it’s not without risks. Like mythical giants, the U.S. federal government can be slow on its feet when it comes to paying. That quickly turns into an accounts receivable (AR) headache for one equipment and supply distributor’s finance department. 

The treasurer and vice president of the NAW member distributor said customers such as community health centers or veterans affairs facilities that depend on government grants and other federal funding are welcome yet carefully watched. 

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“This is the receivables issue we are most focused on,” he said. “If the government decides to hold those grants, it’s a domino effect for us. If the customer isn’t getting their grant money, it’s kind of hard to pay us. We deal with the Department of Defense as well, and really any government-related entity can become a challenge, whether it’s a contract we have or someone buying from us and reselling to the government. We are monitoring all of them on a regular basis.” 

Deals for Past Dues 

Apart from recent grant funding holdups or payment slowdowns that have notably increased since February, this distributor’s books bear very little bad debt — past-due payers comprise 25% of AR, but the average time to pay overall is still just 45 days. Their customer base is a mix of substantial, multi-location entities and small, independent practices. Regardless of who they are, if bills are past due, the distributor doesn’t waste time arranging payment plan options and occasionally has to put a customer on hold from ordering if they’re not paying. The company focuses on receiving payments via Automatic Clearing House (ACH), but checks still come in the mail, and credit cards are another popular option.  

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“We obviously want to get paid on time, because cash is king,” he said. “But getting them to pay on time can sometimes be a challenge, and they all have their own reasons. We do have some programs in place with a third-party bank, so if a customer is buying some major equipment or technology, they can get their financing through them. We also offer some programs ourselves where we give the customer payment terms for larger purchases, such as three or six months. This can affect days sales outstanding (DSO) but at the end of the day, a sale is no good unless you can collect the cash, and we do a pretty good job of that.” 

Past due customers don’t exactly keep this executive up at night — the watch list is small and manageable, but it is a major focus, he says.  

“The biggest issue I have with a customer is if they make a commitment and they don’t meet that commitment,” he added. “They say, ‘we’ll pay by this date,’ then we monitor, and we don’t get it. The other one that bothers me is if you just don’t hear much communication when you’re reaching out. Those are my two biggest concerns.”

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Occasionally, the company harnesses the sales team to chase late payers, since sales owns the relationships. Happily, for the AR department, bad debt is not impacting operational costs because they’re still collecting cash.

“It’s not causing a crunch on the bottom line, and it’s not affecting EBITDA at all,” the treasurer noted. 

Digitizing AR 

The distributor is modernizing AR this year with the installation of a new ERP now underway. Replacing an older system, a new, out-of-the-box platform will have some customization built on — best of all, it comes with support.  

“One of the big things from a payables side is ACH — we want to do more than we currently do,” the treasurer said. “We do receive a good amount, but we want to increase it and have the ability to link our systems better for reporting purposes.  

“We are looking for more efficiencies and effectiveness, and we’re always looking at ways we can improve the bottom line,” he continued. “For instance, when we get our receivables, is there a way to do a match on invoice name, dollar amount, and apply them directly to the customer’s account? It’ll be easier to view, and the system will be easier to utilize — and I think people using it will be more efficient. Our goal is to leverage technology so that fewer people have to touch individual transactions.”  

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AI functionality is certainly on the table, but they’re not rushing in, he said. 

“Our CFO wants to look at how AI can help us in certain areas. One example for an AI application might be providing help to customers who call in with questions about their account or to make a payment. But we’re in the initial stages of exploring these tools.” 

More in Our Executive Input Series

• Counting Down to a Self-Serve World: Who Will Be the Pumpkin When Midnight Strikes?
• AI, ERP Top CIO Hot List
• Seamless and Sameness: What Really Matters in the Delivery of Self-Service?