Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
Ken Schivone,
United Portfolio:
651.646.1633
ke*********@*************io.com
www.unitedportfolio.com
Improve bottom line
by focusing on
accounts receivable
by Ken Schivone
THE BEST WAY to avoid losses from nonpaying accounts is to stay focused on keeping your customers current. According to the Business Owner Newsletter, if one of your accounts falls past due by more than 180 days, you will lose 33 percent of the dollars owed. So how can you minimize delinquencies?
First, make sure to bill your customers correctly and in a timely manner. The easiest way to let your customers fall behind in payments is for you to give them the impression that paying you is a low priority.
If your bill arrives last in the billing cycle, it is likely to be paid last. If you don’t specify an early due date, it will go to the “end of the month” stack. If mistakes are made and left uncorrected, your customers will feel it appropriate to let payment slide until you prove that the amounts billed are correct.
When the payment is due, don’t be afraid to call and ask when you can expect the payment to arrive. Most times you will get an apology and a promise that the check is in the mail.
Get to know your customer. If their business is new, you will need to be more careful. According to the U.S. Small Business Administration, 95 percent of all new businesses fail within five years. If your customer is newly incorporated, you will want to think about whether or not they will be in business next month.
There is a natural reluctance to ask new customers to submit themselves to potential negative consequences for failing to pay your invoices. Don’t worry about it. The customers who intend to pay you will not think twice if you have a clause in your contract or invoice that says they must pay late charges, interest, collection fees or attorney fees.
The simple fact is, if they do not intend to pay you, you do not want their business. If you decide to take a chance on a new or shaky customer, you need the force of some penalties to help you collect. Otherwise, when you pay a lawyer or collection agency for their services on a contingent fee basis, a substantial piece of your money will be going into somebody else’s pocket.
If you are dealing with a small business, you will want to have somebody with good credit personally guarantee the debt. The existence of an individual guarantor dramatically improves your chances of collecting a delinquent account.
Also, make certain your credit application includes permission to pull a credit bureau report on individual customers and guarantors. The report will show who is current with creditors and it is also possible to get credit scores showing the likelihood of your getting paid.
Ask for a copy of the most recent financial statement they gave to their banker or other lender. Ask for a copy of the prior year’s tax return. Consider purchasing business credit reports and credit scores from Experian or Dun & Bradstreet.
Avoid ‘hollow shells’
Whoor what is your customer? Is it a corporation, partnership orproprietorship and what difference does it make? If, down the road,you find out that your debtor is the hollow shell of a defunctcorporation, there is no chance of a recovery. To find out, check withthe Secretary of State of Minnesota, or state of residence of thecustomer.
Simply by calling 651.296.2803 or logging on to the Web page, www.sos.state.mn.us/home,you can learn if the debtor is a corporation or limited liabilitypartnership. If neither, the owner does not have the protection oflimited personal liability. If it is a fictitious name or assumedname, you will be able to learn with whom you are actually doingbusiness.
When you think about adding staff to collectreceivables, compare the presumed cost of the position with what youhave been paying your attorney or collection agency.
If you decide to add a collector position, how do you go about findingthe right person for the job? The best predictors of success for acollection professional are longevity of prior employment and therecommendations of previous employers and supervisors.
Outside help
Fear of inadvertently violating federal, state and local collectionlaws and ordinances may deter you from becoming much involved in thesometimes precarious debt-collection process. Further, having anin-house collection department may not be affordable for manycreditors.
In that case, one option is to forward accounts to attorneys forlitigation. Again, the best way to find one is to get a recommendation.Some lawyers employ debt collectors to assist in the collection ofaccounts that may be too small to justify the costs of litigation,which are considerable today. For example, the fee to file a lawsuitin the District courts in Minnesota has recently risen from $145 to atleast $245.
Because of hourly fees and high court costs, routinely forwardingaccounts to law firms with no collection department to litigate may notbe cost-effective, especially for accounts under, say, $7,000.
Another option available to a creditor is a collection agency. Allcollection agencies in Minnesota are required to be licensed by theDepartment of Commerce, which regulates and oversees collectionactivity. Agencies must maintain a bond to protect their clients. Theywill also carry liability insurance to protect against losses caused byerrors and omissions.
If an agency has been successful with other clients, these clients maybe willing to give a recommendation. Some creditors use more than oneagency so that they can compare results regularly.
Look for an agency that has attorneys on staff who can handleregulatory compliance issues and complex matters such as somebankruptcies. If the debtor hires an attorney, the agency legaldepartment can step in and place you on an even footing in thenegotiations.
If the agency cannot collect the account, they will be able to providevaluable information regarding why the account could not be collected.If an account remains viable with a reasonable opportunity for arecovery, the collection effort will have provided valuable insights toguide you in deciding to bring a lawsuit.
Collecting delinquent accounts receivable is both an art and a process.An attorney or a collection agent may be able to collect accounts thatyou, the creditor, could not.
