Six Things You Should Know About Collecting Receivables

Six Things You Should Know About Collecting Receivables
By JAY GOLTZ







In my last post, I explained how my lawyer, Ira Helfgot, who is president of the Illinois Creditors Bar Association, helped me collect a serious and seriously late receivable. Mr. Helfgot also gave me a quick six-point primer on the world of credit collection that I will share with you:

1. Many businesspeople think that if they get a lawyer to send a letter, the customer will pay. This is usually not the case. By the time it gets that far, your customer is probably not paying a lot of people and those people are all getting lawyers to send letters.

2. Collection agencies work on a percentage basis and generally do not file lawsuits to collect. Instead, they write letters and make telephone calls. But if a letter from a lawyer won’t work, neither are letters or telephone calls from a collection agency likely to work.

3. From a business standpoint, most lawyers don’t take collection matters because the business owner does not want to pay the lawyer on an hourly basis (otherwise known as throwing good money after bad), and most collection matters are too small to yield a reasonable fee for the lawyer on a percentage basis. (The standard contingency fee for lawyers is one-third, but there are lots of variables and the rate is open to negotiation.)

4. Most collection lawyers are willing to take small matters on a percentage basis but would rather not take a single file; most of their clients have hundreds of files. Various state or national bar associations, like the Illinois Creditors Bar Association, the National Association of Retail Collection Attorneys and the Commercial Law League of America may be helpful in finding a collection attorney.

5. In Illinois, a corporation can file a claim without an attorney if the claim is $2,500 or less. But filing a claim does not automatically result in obtaining a judgment, and obtaining a judgment does not automatically result in getting paid. This is a time-consuming and difficult process. Lawyers get paid for their time and expertise — just as you do.

6. Companies frequently wait too long to turn a bill over to a lawyer or compound their error by extending even more credit in a risky effort to double down. You need to know when to say when so that there is money left to get.

If you have any questions for Mr. Helfgot, you can e-mail him at iralaw@sbcglobal.net.

Jay Goltz owns five small businesses in Chicago.

The Secrets to Collecting Receivables

The Secrets to Collecting Receivables
By JAY GOLTZ



One of the more harrowing parts of running a business is learning the realities of selling on credit. I sell art and framing to businesses and institutions, and I am forced to extend credit to many of them. I say forced because no one in his right mind would give credit if he didn’t have to.

This kind of credit, known as trade credit, is unsecured credit, which means you are at the end of the line to get paid if your customer goes broke. That’s what makes this a particularly dangerous game to play. Most entrepreneurs have little or no experience overseeing an intelligent credit policy when they start their businesses. They learn quickly. In the beginning, it’s all about making sales. After a while you learn that it’s about making sales and getting paid.

Last year I made a large art sale to a local college. One of the pieces it ordered was a commissioned sculpture that cost $70,000. For reasons that were never clear to me, everything the college ordered was billed through a “marketing company” that contracted for the work and paid the bills. I had done business with the company before, and it had good credit. As is customary, I got a 50-percent deposit on the order. So far so good.

We finished the project and billed the company for the balance. We did not get paid at 30 days, and our collection efforts started. First, my receivables person started calling and got the usual stories. At 60 days, my chief financial officer took over and got a different standard response: “We have over $600,000 in receivables ourselves and people are paying us slowly. Don’t worry, you’ll get paid.”

At 90 days, as per our protocol, I took over. There is something special about getting a call from the chief executive to get a bill paid. I called the partner who had signed the credit application and who is also the marketing company’s chief financial officer. I got the same $600,000 story. I told him I would call back in two weeks if I didn’t get paid.

Many times I do get paid; this time I didn’t. I called back and got the $600,000 story again. “Wait a second,” I said, “I own a business. I get the slow receivable thing. But how could your receivables not have gone down in the two months since we have been calling? Someone must be paying. What’s the real story?”

I learned this interrogation technique from watching too many episodes of “NYPD Blue” and “Law and Order.” This is not a game for the timid. I got a confession. The chief financial officer told me that the company had changed its “business model” from printing to digital and that the new computer programs they had developed took longer to get to market than they had expected.

When you extend credit, you essentially go into business with your customers. Twenty years ago I would have gone along with the program of financing their new business model — only to find myself cut out of the will when the company died. But I had seen this movie before, and I had learned my lesson.

I told him he had two weeks to come up with the money, or I was giving the case to a lawyer. I did not get paid, so I gave it to a lawyer who specializes in business credit collection. The lawyer, Ira Helfgot, is president of the Illinois Creditors Bar Association. The end of the story is that Mr. Helfgot got a judgment against the company and a garnishment on its bank account. I got paid.

Part miracle, part good legal work, part knowing when to send in the dogs. Every situation is different, but from my experience, when an account goes beyond 120 days you’d better face the reality that statistically you are very likely holding a bad hand. I have lost hundreds of thousands of dollars in bad receivables. It is sometimes the cost of doing business. Other times, it is the cost of not doing business properly. I have done both.

Here’s what I’ve learned: Always get a signed credit application. Always check credit. Always establish credit limits. Always call when they are late. Always assume that you are going to have some losses.

Jay Goltz owns five small businesses in Chicago.