To COD or not to COD
COD, Cash On Delivery. Three freighting words for a small business, that is if you have to pay upon shipment.
There are a lot of ways to manage the money side of a small business. Sure, if we all had unlimited funds, of course we would pay only when we wanted to, but the fact is money is tight. How does the phase go: “Cash is King and Cash flow is Queen.”
I used to have a manufacturing/printing company in Northern Ohio. For the first two years I managed to make ends met, but by the second year things started to get a little tight. My main supplier told me that I would have to pay on a COD basis. Not a great spot to be in, but then I got the call from the head of credit from that key supplier.
You know how some phone calls or other important events you remember years later? Well I remember this call like it was yesterday. She gave me some sound advice, and I am glad she made the time for me. Her advice; stay on COD for all of your vendors. Never take credit and never owe anyone money, not unless you get really lucky and obtain a large line of credit – which I never had.
You see my business did about $60,000 per month is sales, and my margin was about 12-15% net. Not bad, but still it was not going to be enough to pull me out of my debt that I got myself into. It was the first Iraq war that did me in. We were doing great until that day, and after that day our business slowed down so far, it was freighting. I kept the best employees on, but the shop became really clean, and freshly painted, if you know what I mean. It took years to dig my business out of that hole.
So back to the subject of COD. I started to only order supplies when I had the cash. The practice prevented me from growing as much or as fast as I wanted to, but after a year or so, I ended up not owing anyone anything. What a great feeling!
One feel-good benefit of COD policy was the good relationships I was able to foster with my vendors. They really liked me; after all, they knew that they were going to get paid. As a result, they always filled my orders first, many times over bigger customers. I remember getting a new vendor and they wanted to extend me credit, but I would not allow it. The only bills that I had on a post-pay basis were the phone company and the utilities. All other companies were COD.
I am sure that an economist would say I did it wrong, or maybe some business coach that never owned a real business. But then again, I started to be able to sleep at night. Sure, growth was hard. I could only grow at the level of my internal funds. But as a business, nobody could shut me down. No single vendor, no single supplier and no single customer could control me. What a strong position I ended up in.
In every business decision there are tradeoffs. But this one, although radical, made sense from a piece of mind point of view.
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