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Penny wise; dollar foolish?

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Penny wise; dollar foolish?

Penny wise; dollar foolish?

Refunds, adjustments and cancellations are tricky business.  You set a policy to help keep people from running you around and then not paying you and hope your policies ensure people place value on your products and services.  It makes good business sence to have these policies and to clarify policies to employees (especially employees talking to customers).  But there are still times when exceptions to the rule are requested.

It is an age old question for businesses.  Do you hold to your policy; or do you satisfy your customer?

Many times, it just feels like the right thing to do–the customer’s business or life circumstances went temporarily off track and making an exception seems like the kind and human thing to do.  I instruct employees to always start these conversations restating our policy; however, if my employees feel the circumstances warrant an exception–they are charged with the authority to do so.

Yet, there have been many times in my eco-tourism business when I have had difficulty making a refund perhaps because a cancellation was far too close to the reservation time for me to resell that space.  Often we have already turned people away because the spot was booked.  The difficulty in making these exceptions has been especially difficult when my finances were lean–that revenue seeming so very important–or when I felt the customer was being rude or taking advantage of my good will. In those times, I had to really dig deep to remember my business policy–it is ALWAYS better to have a customer leave feeling cared for, than to be right and them disgruntled.

Today, I found myself on the reverse side of this discussion as a customer and I am more convinced than ever my policy is the one to follow for me, and for you.

The company I had a dispute with surprisingly charged me a rather large sum of money all at once that I had agreed to pay in smaller increments, over a period of time.  I was not disputing my willingness to pay, just when it had been arranged.  After discussions with multiple people–all the way to the top–they yeilded very little but did agree to a small change.

The company will get my money because I still desire the service I was purchasing and I will receive the value of the service. They will get their money faster than what I had agreed because their sales representative had offered something outside of their policy. Despite my arguments they should honor their agreement their policy held.

The benefit to this company is insignificant since I planned to pay them, was a repeat customer, and they were delivering the service over a 12 month period– so they could cancel me anytime if I failed to completely pay.

The cost to them is high.  I will not likely trust their sales rep in the future, certainly leary of any promises.  I will probably be less inclined to encourage my colleagues to buy from them because I have lost the trust required for such referrals.  In the end they will get $20,000 possibly two months faster than they would have otherwise.  Even at 10% interest on their cash (an overly high estimate) this would amount to less than $200 benefit to them for collecting my money earlier than agreed. However, they will possibly loose $50,000 – $100,000 from this short-sighted decision based on lost revenue over the next two years–a ratio worse than penny wise; dollar foolish.

A few important lessons for any business owner or manager to take from this are:

  • Make your customer satisfied in all interactions.  You can loose more money in backend dealings with customers than you realize; causing you to work harder the revenue you receive because you loose the multiplier affect of your original sales efforts.


  • Give any employee with customer interaction the authority to make exceptions; then stand by them. (The amount of time this company spent on my situation cost them far more than the $200 they gained by forcing early payment.  The sales rep could have had the authority to adjust my account to multiple payments.  The first person in accounts receivable could have had the authority.  None did, and I ended up talking to the CEO of the company, whose time is far too valuable to worry about a $200 decision.)


  • Make sure your employees are not afraid to fail.  The sales rep who offered me the payment plan may have done so for his own commission.  However, I feel he was also trying to get me something he knew I wanted and was not ready to pay for.  Once accounting billed me and I started pushing for the charges to be reversed he was forced to justify himself to his managers. He backed down on what he had promised me, probably more afraid of the consequenses of making a choice management disagreed with than of sticking by his original agreement.  One of my first managers told me early on, “I would rather you take action and possibly make a mistake, than for you to wait for my decision on everything.”  He meant it.  He always stood behind my decisions.  I increased revenue by 250% by being able to make commitments to customers in the moment.  It is a great policy and I continue it to this day in my own companies.  My principle–don’t hire people you are unwilling to give authority to, and structure your organization to assume those you do hire will make good choices 90% of the time.

I gained both insight into the business side of this company I had not seen before which will educate me in further dealings. But more importantly, I got solid confirmation that working with me today would have gained them great loyalty and their unwillingness to do so has lost them many times more than they have gained.  If I ever wondered if my kind acts to customers in the past paid off, today I am most certain they did.

Next time you want to fight with a customer to get what is due; ask yourself what you will loose if you do and what you might gain by going out of your way to be helpful.



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