How do I check an equipment rental yard’s customers who pay late?
Ask for an aged list of unpaid invoices by customer, then look at who is slow, how slow and why. Compare it with the agreed terms and past payment history. Check whether any large debts were disputed or written off, and whether a few accounts make up most of the overdue amount.
Request the receivables list as of today and for the same date in earlier years. Sort it by age and by customer. A few contractors often account for most of the overdue amount, so check how concentrated it is. Compare each account’s terms with how it really pays.
Then read the story behind the oldest items. Is it a dispute over damaged equipment, a billing error or a customer who is struggling? Ask what the yard has done to collect, and whether it has ever sent an account to a collector or written one off. Ask the same question about equipment that was never returned.
Look at how the yard grants credit. Does it check new accounts, take deposits or hold a card on file? Ask whether late payers still rent. Finally, find out how the overdue amounts will be treated at closing. Your accountant can help you judge what is likely to be collected, and your lawyer can set out who keeps the right to collect. Watch for patterns in who pays slowly, such as one type of customer or one season. Patterns point to causes you can fix, like firmer deposits, and they help you judge whether a problem will continue.
Key takeaways
- Get an aged receivables list and compare it with earlier years.
- Check how much of the overdue amount sits with a few accounts.
- Ask who keeps old debts at closing and how they are collected.
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Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
- 02Business Development Bank of CanadaGovernmentWhat are the steps to buying a business?
- 03Business Development Bank of CanadaGovernmentAccounts receivable
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