FINANCE: Squeezing Money Out of Debtors

What's worse than not having customers? Maybe … having customers that don't pay.

Waste companies, just like other businesses, are having problems these days with increasing numbers of past-due accounts receivable and deadbeat customers. And trying times demand breaking with traditional payment collection devices.

Take the case of the hauler who was trying to recover $5,000 in unpaid disposal charges from a company that sold and distributed office equipment and furniture. After repeated phone calls and certified letters proved fruitless, the 72-year-old patriarch of the family owned business decided to take matters into his own hands.

He made a surprise personal visit to the customer's facility, where he saw a storage yard with sealed shipping containers. Entering the warehouse, the hauler found office items still in their original boxes. As luck would have it, the company owner and plant manager were talking in the office. After introducing himself to the men, the manager sheepishly apologized for ignoring the calls and letters.

The company had been a thriving business in the community and throughout the region for 15 years. Indeed, until a year earlier, it had a reputation for excellent customer service and relatively prompt payment to vendors and suppliers. Now, said the company owner, it was teetering on the verge of collapse and had very little cash. It seems that a large national superstore had opened, featuring customer-grabbing discounts the local firm simply could not match.

Pausing for a moment, the owner of the hauling firm offered a possible solution. He told the men that when he began his business as a one-truck operation, he often took payment from customers in the form of barter — meat from a butcher, tools and paint from a hardware store, cloth and fabrics from a dry goods merchant. Now, he proposed, some of their inventory could be used as payment toward outstanding debt, assuming no bank or other lender had liens on the merchandise.

With assurances that the debtor owned the goods free and clear, the hauler arranged for a truck to pick up an agreed-upon assortment of merchandise from the warehouse. The hauler figured he could lure buyers only if the items were marked well-below what customers expected to pay from customary sources. He credited the debtor with 30 cents per full retail dollar value. Thus, a desk that originally might be priced at $799 and sold by a discount merchandiser at $499 would be worth $240 toward the unpaid waste collection bill.

Upon pick-up of the items whose overall marked-down value equaled the delinquent charges, the hauler handed over a waste collection invoice stamped “paid in full.” By taking possession of the merchandise and crediting the debtor immediately, the hauler essentially took the risk that the sale of the items would yield at least as much as what the customer owed.

The hauler handed out notices announcing the sale, and got a special permit from the county licensing office. Clearing space in the yard behind his truck garage, the hauler spread out the merchandise and, during a four-day period, cleaned out the inventory at fire-sale prices that still produced enough cash to clear the books and make the arrangements worth the trouble.

The lesson: Be ready to try the unusual. Be innovative. Even during an economic slump, these are the keys to getting bills paid and minimizing losses. Meantime, check out the creditworthiness and business references of prospective customers. Payment terms should be made clear in a written agreement, and billing and collection procedures should be understood and strictly followed by accounts receivable staff. If payment is late, ask the customer if there was a problem with the service. If service is at fault, then correct the situation. If a customer is having cash flow problems, then arrange a manageable payment plan. If nothing seems to improve, then call a lawyer or a collection agency.

Most important, don't delay. If an account is 90 days past due, there is a 73 percent probability of collecting on that account, according to a 1999 survey by The Commercial Collection Agency Association, Cedar Grove, N.J. After six months, the chances of collection slip to 57 percent, and then to 29 percent after a year, the survey said.

Of course, a hauler can suspend service to a no-pay account or insist on payment before the truck will make the stop. But service cut-off is a very dicey solution if the delinquent account has been a regular and substantial customer. No vendor or service-provider wants to lose a big account, but it makes no sense to pour time, money and service into a situation that does not offer a reasonable prospect for recovery.