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PAYING AND COLLECTING DEBT
By Marc Kramer
"Web Sight"
marc@kramercommunications.com
Tuesday night as the 76ers were beginning their march toward the National Basketball Association Finals, I was sitting at a dinner meeting of the Technology Resource Alliance, a non-profit consortium of technology company leaders and service providers in the Delaware Valley, at Overbrook Country Club. One of the main topics of discussion was how to collect debt and conversely how to deal with vendors their companies owe money to.
The last year has been very tough on businesses. Companies are buying products and services that they want and need, but they don’t have the cash to pay for them in the usual acceptable 30-day period. Companies are paying vendors in 60 to 120 days.
How does this happen? Why are companies providing products and services to companies they know in their gut can’t pay on time and in some cases not at all?
The answer is simple. Sales people have to make their quota’s or they lose their jobs. Companies are willing to take chances because non-productive assets whether they are people or product are non-productive whether they sit in your offices and warehouses or someone else’s, so everyone is willing to take some risk in the hopes of getting paid. No one wants to upset long standing or new clients.
If you stood outside two office buildings where the company in A Building was selling to the Company in B Building you would here the president of the company in A Building telling his sales force to close deals with B and do whatever it takes and the president of B is giving the same orders, except the controllers on both sides are being told to stretch payments out and only pay the most important vendors.
I have run 10 businesses and here are seven steps/solutions that have worked for me:
- If I am in a cash crunch and this has happened numerous times because I run startups, I send letters to all of my vendors letting them know how we are doing and when they can expect to be paid. Don’t ever dodge your vendors or they will feel as if they won’t get paid and will need to hire an attorney to get what is owed to them.
- When you notify your vendors that you can’t pay the entire bill, include a small check to let them know you are serious about honoring your commitment. Everyone goes through cash flow problems.
- If I am owed money, I call the controller or president of the company and tell them that if they are having a problem I understand, but I need to know what their plan for paying me. Don’t scream and threaten, be understanding. I heard one of the CEO’s at the meeting say that it took them two years to pay off debts, but they did it and the vendors who stuck by them have a loyal customer for life.
- See if your client has anything of value that you can barter. If your client is a printer and you need a new brochure cut a deal. You were going to spend the money anyway.
- I have asked my vendors if they know of anyone who could use my service and if so, that would not only help me pay them quicker, but I would give them a finder’s fee for new business.
- Finally, if you have well known blue chip clients who take 90 days to pay think about factoring your receivables. Factors loan you money at basically 3% percent interest a month against 80 of an invoice. It’s a short-term solution. I used a factor for almost a year in one business I ran because we couldn’t get a bank loan and the factor saved our business.
- If you are looking to reduce your expenses, but don’t want to layoff people, do what one of my clients is doing and that is shortening his company’s work week by one day during the summer and there by saving 20% of his payroll costs.