The Situation – Rich New Yorkers Weren’t Paying their Bills
The remote, northwest corner of Connecticut is a wonderland for outdoor sports enthusiasts. And while it is close to New York, it is not so close that it gets a lot of vacation traffic. That’s why New Yorkers and famous people seeking the outdoors and privacy love to have vacation homes there.
Forty-plus years ago, a “local” started an oil delivery business. He developed the business into an automatic delivery service to the country homes of wealthy New Yorkers who weren’t there to know they needed the oil. He did that well before computers did that for us, and created an outstanding reputation for reliability.
The Son Comes Home and Improves the Business
Several years later, the father moves to Paris, France, leaving the business in his wife’s hands. She didn’t want to run the business, so their son came home from his Wall Street job and took over.
The son created a brilliant strategy for growing the business: Add HVAC and plumbing services to the business so as to provide a year-round home maintenance concierge to the rich and famous. He acquired two local service providers, retaining the owners as managers, and put his strategy into place. The customers loved it and contracted for the add-on services.
A Wealthy Client Makes an Offer
The business became so successful that one of the high wealth banker clients decided to acquire the business. There was just one problem: The past due Receivables were enormously out of proportion to revenues, bordering on 40% in an industry where standard averaged 10-15%; and many were more than three years past due. The potential buyer told the son that the Past Dues must be cleared up before the transaction could be completed.
Why on earth would high wealth clients not pay these bills? And to further add puzzlement, why would they continue to faithfully pay the oil delivery service fees, but not pay the bills in question?
The Exit Eagle called the customers and, instead of reminding them that they owed money (as the Collections Specialist had been doing for a couple years), we asked them: “Why aren’t you paying these bills?” The response was rather unilateral and surprising: “Because the job hasn’t been completed yet.” Could this really be true?
The Exit Eagle applied the problem-solving process to drive to root cause, and discovered:
- The collections/ Receivables problems didn’t start until the plumbing business was added, and accelerated after the HVAC acquisition.
- The Purchasing agent had formerly been The Scheduler for the oil delivery business. After the two new businesses were merged in, she was given a nice quiet place to do her work. She took part orders from the service technicians, placed the orders, and put the service order with parts on the shelves when they came in.
- And that’s where it ended.
When The Exit Eagle discovered this, we began to work with the Service Managers to finish a few jobs. Then we would call the customers and ask them to pay. And they did. Pretty soon, it caught on and a full-out effort was made to clear the shelves of ordered parts by finishing the jobs. The customers paid. A system was established to track jobs and completion, the Purchasing Agent retired and was replaced, and the high-wealth banker bought the company.