The recent outbreak of natural disasters left certain areas of the country reeling. No power, no water, and blocked roads resulted in no way to distribute product or services, and no way to collect receivables. Businesses both large and small were in a panic. Why? No cash flow. How are they going to get paid? The answer is – they are not! At least not in the near term. Whether a customer is in collection or about to be, the problem is the same – they can’t pay their debts. As a vendor, your problem is how to help them stay in business so that you have a chance of getting your money – eventually!
HOW TO IMPROVE YOUR CHANCES OF GETTING PAID
Obviously, you are going to have to wait for your money, so making it formal by giving them a moratorium on payment is a good first step for alleviating some of your customer’s/debtor’s stress and it makes you look like a good guy and may put you at the head of the line when they are operating again. Of course to do this you need to communicate with them, which could be a problem if they have no power, but eventually you will get through and giving them an extra 45 to 60 days for meeting their obligation will be very welcome and improve their odds of staying in business.
However, planning is everything and the very best way that you can increase your customer’s chances of surviving a natural disaster is to convince accounts that are in potential disaster areas (Florida, Texas, Louisiana, Oklahoma, Kansas, and California are some localities, but they can also be affected if they are hundreds or even thousands of miles away) to plan in advance for its occurrence. Not a simple problem as most people are resistant to this type of suggestion, even if they know it’s for their own good.
If a business is forced to cease operations after a natural disaster they run a substantial risk of never opening their doors again. You can’t effect the probability of a natural disaster, but you can prepare for it. Having a well thought out disaster plan and sufficient insurance will help your customers recover when disaster strikes. The following are some of the things they need to do if they want to survive a natural disaster.
CRITICAL COMPONENTS OF A BUSINESS RECOVERY PLAN
They need to:
- Create a detailed disaster response plan and make sure employees know whom to notify and what to do to limit employee casualties and property losses.
- Practice the procedures set out in the disaster response plan on a regular basis.
- Prepare a list of critical phone numbers and email addresses.They will want to get in touch with key people after a disaster. Include local and state emergency management agencies, major clients, contractors, suppliers, realtors, financial institutions, insurance agents and insurance company claim representatives.
- Develop a strategy to communicate with customers to limit loss of business.
- Develop answers to the following questions:
- While a natural disaster is occurring will they need a back-up source of power and a back-up communications system?
- What impact will a natural disaster have on their employees’ ability to return to work and their customers to receive goods or services?
- What impact will a natural disaster have on their plant and equipment?
- If their business escapes the disaster, do they still have a risk of significant losses due to the inability of suppliers to deliver goods or services?
- What is the financial impact to their business if it shuts down as a result of a disaster for a day, a week or longer?
- Can they run their business at another location if they cannot afford to curtail operations?
- Make sure they back-up computer files and critical systems every day and also maintain a copy off-premises (the cloud). Store copies of all critical records and documents in a safe deposit box and keep them current.
REVIEW THEIR INSURANCE COVERAGE
They need to sit down with their insurance broker and make sure their business is protected. They need to review their insurance policies to ensure there are no gaps in coverage and that every type of insurance they need to guarantee their business’ survival is in place. Make sure they are covered for business interruption and the cost of repair or rebuilding. If their policy does not cover flood or earthquake damage they may need to buy additional insurance. Other types of specialized insurance that may be pertinent to their business should be discussed. As insurance is not cheap, they’ll need to make some decisions on a risk – reward basis as to how much coverage they can afford.
CONCLUSION
We have covered some of the basics for preparing for a natural disaster with the expectation of hoping to help you improve the chances of your customers’ surviving. We recommend that you check out the internet for business continuity and disaster recovery templates that go into far more detail than we can in this short article and recommend to your customers that they review them and plan accordingly. If a natural disaster strikes some of your customers there is little you can do to help them if they haven’t planned ahead. If you want to improve your chances of ever collecting what they owe you they need to stay in business and anything you can do to reduce the likelihood of them failing is in your best interests.