June 24, 2024

You’re the Boss: Soldier of Fortune: Collecting Receivables

Thinking Entrepreneur

There are many bumps in the road on the way to building a successful business. Many of the challenges are right in front of you — like finding business, delivering the product or service on time, hiring the right people, and financing the whole to-do. One of the most surprising, upsetting, and dangerous challenges is trying to collect money owed (as we discuss in a small-business guide published today). If you own a cash business, this should not be a problem. If you are in a business that has to extend credit, it is a problem that can have disastrous consequences.

I started extending credit many years ago as my company grew and I started doing business with companies that expected, or demanded, credit terms. I complied because I was so happy to have the business. And in most cases I got paid. But I learned early on that just because you have payment terms of 30 days does not mean people will pay you in 30 days. You have to call them, you frequently have to send them a new invoice, and you frequently have to call them again. It is difficult being a nice guy salesperson one day and a tough-talking credit collector two months later. Here are some things I’ve learned through the years.

1. Stop giving credit to anyone who asks. Most companies do have credit cards. If you are selling something that is being resold, or providing a regular service, you probably need to extend credit to be competitive. Make your clients fill out a credit application and provide references. If you are doing this a lot, consider joining one of the credit-rating services (can anyone recommend one?). For a small company with a limited staff, this will add one more burden that is easy to neglect, especially when you are hungry for sales. The only thing worse is spending a lot of time trying to collect money, the crucial word being trying. An experienced business owner knows that the job is not done when the product is shipped or the service delivered, it’s when you get paid.

2. Credit collection is not pretty, fun, or for wimps. There are people who are short of money, people who just don’t like to pay, and people who are going broke. It is not always easy to tell which is which. There are people who will not pay unless you keep calling them. They most likely have a long list of creditors beyond you that they are not paying. The creditor who bothers them the most will probably be the one that gets paid. In this case, patience is not a virtue, it is a liability. In some cases, it is not worth doing business with them. In other cases, it is. Perhaps you should charge them more.

3. When it really gets bad — 60 days, 90 days, the customer is not returning calls, not following through on promises and things are looking bleak — you might call your lawyer. This is when you learn that business, like life, is not always fair. A threatening letter from your lawyer will not make them quake in their boots, and suing or sending it to collection costs a lot of money. But being an obnoxious, crazy animal can work. Sometimes.

For example: a new restaurant owed me money for some art. In hindsight, I should have insisted on payment upon delivery. After it continued to give me the run around, I went to the restaurant on a Friday night — it was busy! — and told its people that I wouldn’t be leaving until I got paid. Or, I could take the art down from the wall. Yes, they probably could have threatened to call the police. But here’s what I was thinking: Go ahead and arrest me! I am already unemployable! I am an entrepreneur. They paid me. And they went broke a couple of years later.

Another time I was lied to repeatedly by an art consultant who had taken some art from me on consignment. She gave me a check as a deposit and then stopped the check. I heard from someone in her hometown that she had stuck vendors all over the Midwest. I got her husband on the phone and screamed at him. I used bad words. I didn’t threaten him, but I made it clear that cheating me wasn’t a good idea. The art was back the next day. I know, a little uncivilized. I’m O.K. with that. I was just trying to support one of the 10 commandments — thou shall not steal.

4. If you give credit, you will eventually get stuck with some bad receivables — even if you are careful. Good companies go bad, and bad companies figure out how to play the system. It is called the cost of doing business, and you should factor this into your plans. There is probably some percentage of bad receivables that is normal for your industry. It would be good to know what it is. Be careful out there.

Jay Goltz owns five small businesses in Chicago.

Article source: http://feeds.nytimes.com/click.phdo?i=7cfad13c9ccfa80b377234ad26d8ecbb

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