Without the support of reliable pallet companies and timely deliveries, many of the goods and services enjoyed by consumers would never make it to stores. The financial infrastructure facilitating the flow of goods through the marketplace requires a commitment to cooperation from businesses and customers alike. When customers put payments to pallets companies on the back burner, trade and trust deteriorate.
Some people will do just about anything to hold onto a dollar, and even large corporations are trying to squeeze a dime out of a penny. Unpaid bills are inexcusable, though, and too much forgiveness will put your company in debt long before theirs. Researching your customers’ credit references and implementing a thorough collections program can help reduce outstanding bills before they dampen your success.
Do-It-Yourself Collections
Getting your money when accounts become past due requires a subtle blend of politeness and aggressiveness. The most common methods of bills collections are letters, phone calls, and physical meetings. Collections letters and meetings require professionalism and composure. Anything interpreted as a threat or harassment could be used against a collector down the line.
The most inexpensive and frequent collections method is a phone call, since you do not have to worry about postage. Furthermore, phone calls allow collectors additional flexibility because collectors can call at different times throughout the business day and receive an immediate response.
Phone calls are also more personal than letters because a collector has the opportunity to learn more facts about the debtor. Collectors should document the date and time of calls, to whom they spoke, and try to instill a sense of urgency by setting timetables for payments. It is also imperative to learn which employee actually writes the checks for your customer, especially when dealing with larger companies. Confirmation of the name and title of this person will allow you to contact him or her directly.
How the issue is presented to the customer is an important issue for small businesses to understand. Becoming hostile or rude over the phone is not likely to produce results and may even prevent collectors from making future contact with the customer in question.
Collectors must also abide by the Fair Debt Collection Practices Act (FDCPA), which outlines strict guidelines for when and where debtors can be called. For instance, the FDCPA considers collection calls made before 8 AM and after 9 PM harassment unless there is “knowledge of circumstances to the contrary.” These guidelines are primarily for consumer protection, but not commercial entities. In instances with small businesses, the line between commercial and private customers is hazy, so FDCPA awareness is imperative, especially for smaller businesses that might not actually be incorporated.
Failure to uphold FDCPA guidelines can result in legal action on the part of the debtor, in addition to penalties enforced by the Federal Fair Trade Commission. Provisions of the law are available online through the Fair Trade Commission’s website at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf.
Sometimes phone calls fail to manifest payments, but alternate methods of coercion are available. John Swenby, managing partner of Paltech Enterprises, which has operations in Illinois, Iowa and Missouri, is all too familiar with debt collections. He ran into trouble collecting on a small bill after employees of a company that received his pallets did not return calls.
“We logged over 100 calls to everybody we could imagine,” John said. After going through “voicemail hell” and being directed, then redirected, to contacts across different departments, he managed to reach corporate managers, which still yielded no results.
John researched his customer’s holding company on the Internet and found e-mail addresses for the board of directors and sent a broadcast message explaining his situation and the dismal behavior of their subsidiary.
It took four months for John to receive payment. “That’s how we’re running businesses today,” he complained. “It wasn’t the large sum of money, but it was the lack of class that these companies are dealing with in paying their bills and communicating with their vendors.”
Certified letters and visits to the offending company were ineffective in John’s case. He believes bigger companies are becoming less reliable about adhering to payment schedules because small companies seem to depend on them. “People stretch out their bills and the bigger the company they are the slower they want to pay,” John explained. “They think their reputations will carry them out. It comes down to arrogance.”
John’s unfortunate situation exemplifies the importance of having familiarity with a customer’s corporate structure. Contacting people in charge of an organization will give a complaint immediate attention, thus increasing the likelihood of a swift and amicable resolution.
Collection Agencies
Some customers have no intention of paying their bills, and tracking them down often requires more time and attention than a business owner can afford. Debt collection agencies provide collections support for businesses with stubborn customers and older delinquent accounts.
“Our clients depend on us to help them with their cash flow,” said Richard Kundrata, owner of RDK Collections Services. “We work for our clients so no one has to walk a balancing act between ethical and moral business practices and collecting their debt.”
Kundrata added that companies employ his services to track down hard to find clients while maintaining a good public image. “[Businesses] want to maintain a good reputation and they want to collect their money.”
One of the most challenging collection issues facing small businesses is tracking down debtors who close a business or move without paying delinquent accounts. “You can kill a company with the stroke of a pen,” Kundrata noted, “but you can’t kill an individual.”
Kundrata’s 25 years of experience helps his staff specialize in skip tracing, or what he refers to as “the art of commercial collections.” He said that scam artists particularly like to disappear for awhile, but they inevitably start up another business, sometimes even with the same company name. Keeping tabs on the movements on one or two wily debtors is a cumbersome task, and contracting collections services permits small businesses to focus more on new sales and other day to day tasks.
Richard Hart, president of Direct Recovery Associates, said his collection service relies primarily on threats of credit damage and litigation to retrieve outstanding debts.
“If we get to a point where somebody won’t cooperate, we report to the credit bureaus,” Hart explained. “Following that, we forward it to an affiliated law firm that’s located physically near where the debtor is.”
Once a collections case reaches litigation, the plaintiffs usually win because collection cases are usually a clear cut breach of contract. Direct Recovery has yet to lose a case. After the judgment, the collections agency is legally able to seize assets, levy bank accounts, and garnish wages until the debt is repaid.
Smaller companies also mistakenly wait too long to try to collect on unpaid debts, especially from other small businesses. “The age of the account is the biggest indicator statistically about whether you’re going to be able to successfully collect the debts,” Hart admitted. “The older it is, the worse off you are.”
According to Hart, unpaid balances beyond 60 days are 15% less likely to ever be paid. Accepting excuses from debtors for six months reduces chances of repayment by nearly 50%.
The main disadvantage of using a collection agency is that most companies withhold a percentage of the collected balance as a fee for their services. Collections fees typically range from 15-35% for most commercial accounts, depending on length of delinquency. Fees for past due accounts that require litigation usually run a little higher, but most businesses prefer to obtain some of their money as opposed to none.
Common Sense, Credit Checks
Reliable customers can turn into deadbeats at the flip of a switch, but cautionary preventative measures can be used to ensure payment is received. Joe Derrah, a private lumber broker in the pallet industry, has had his fair share of collections issues, especially from customers who have gone out of business before paying their bills.
“If they go out of business, then you’re pretty much [out of luck] unless you can get coverage,” Joe said. He suggested requiring personal guarantees from small businesses so that the owner can be held liable for outstanding debts, even if his or her business folds.
Payment up front is another viable alternative to outstanding bills. Even though some companies oppose the idea of cash on demand (CODs), credit cards provide a safe financial alternative, especially for new customers. Credit cards also allow customers the chance to extend their payment deadlines, since most credit card balances are not due until the next monthly billing cycle.
The most difficult collection scenario occurs when a longtime customer becomes delinquent. The gray line between a friend and customer can let one or two innocent excuses turn into a big headache. “You go one step at a time,” said Joe. “You see what you feel about it on a day to day basis.”
Demanding timely payments from larger corporations is a necessary but sometimes intimidating sales hurdle. “Most big companies want to pay 60 to 90 days [later] but small companies can’t deal with that,” said Clarence Leising, a representative from Eagle Metal Products with 25 years of experience in the pallet industry. Clarence advised including financial penalties in the contract in order to expedite payment from larger corporations.
“When the original agreement is done, it should be a part of the contract that payment must be made in 45 days or there’s a penalty of some kind,” Clarence noted. “Most people don’t do that, and that’s when you get into problems because the one thing they don’t want to talk about is payment.”
He added that sales representatives naively assume that they will receive timely payments from larger corporations because of their size or reputation. “A lot of big companies have to go through corporate headquarters somewhere and get approved,” said Clarence, noting that payment might not be approved until over 90 days after the original transaction.
However, the best way to resolve potential conflict of interest with older accounts is to apply a blanket standard for how to handle delinquencies, regardless of the customer. This problem is exacerbated when sales and collections are run by different people or different departments within the same business.
“Most companies are dominated by sales oriented managers or owners,” Hart remarked. “When the warning signs are given by the debtors, [like] excuses for not paying or broken promises, the credit people say we’ve got to move on this quickly, and the sales people say ‘I know this guy. He’s a good guy. He’s not going to stiff.’”
Hart advised implementing a companywide policy for handling delinquencies based on a rigid timeline. For instance, after 30 days write a letter and make a phone call and at 45 days pay the customer a visit. Having a policy clearly defined and understood by employees and customers will minimize hard feelings if one of your best customers receives a notice after being only a few days late.
Researching customers is also an excellent way to verify their credit history. “If you do your homework, you’re not going to get burned,” said Clarence.
Visiting a customer’s business to observe traffic flow will also help you gauge their success. “Drop by the place, see how many trucks are going in
and out,” Clarence added. Of course, a good old fashioned credit check is still the best tool for protecting the integrity of a sale.
“If you do a credit application you’re actually letting them give you the references,” Clarence remarked. “If you call up a bad one, then there’s your sign. I don’t know many people that give out bad references, but they do.” A few minutes on the phone could easily prevent sales to a financially unstable customer.
Debt collection is often a touchy issue for small businesses wishing to retain their customer base. A reliable customer base is much more effective than a big one, though. Enforcing a rigid collections policy and conducting thorough credit checks can curtail delinquencies before they drag your company into the red.
