Do not collect $200.
Naomi asked how my end of financial year (EOFY) was going.
I reflected that it was rather less cheery than the current crop of pay TV ads.
The source of my ennui is a large sum of money which I’ve earned, but not received.
For the first time in Empire history, I’m thinking debt collection.
I wonder if I’m alone in this.
Belt up
When seatbelts became mandatory, my dad had a belt installation business.
One client owed him ten pounds – a lot of loot in those days.
After trying everything else, Dad hired a debt collector.
This burly but very quiet man had a big van emblazoned with DEBT COLLECTOR.
His non-violent approach was instructive.
He simply parked at the offending party’s front door – in full view of his neighbours – and waited.
Soon enough, the debtor appeared. Eventually, so did the ten pounds.
Dad got nine of them and was well pleased.
Collect call
A few months ago a debt collector cold-called to ask if I had outstanding invoices.
I didn’t, but now I do.
Then I got a business card in my letter box. I’m looking at it now. It says:
DCS. Debt Collection Services. We collect debts. That’s all we do.
Always a fan of clear, concise communication, I’m doubly impressed today. On the back it says:
Fast debt recovery. Email your problem debts to us for action.
I’ve just checked their website; their services look highly effective and seductively easy to invoke.
I’ll send them this post and invite their comments.
Collateral damage
Of course, summoning the cavalry will do little for client relations. Perhaps I should send another polite email.
That’s what I’ve always done; the money almost always turns up eventually.
I’ve had a few bad debts over the years, but the circumstances have been so hideous that I’ve preferred to walk away rather than squander more time and energy on the offenders.
But dollars seem more precious these days.
Worry wart?
Of course, this whole question could be academic.
Everyone could simply be holding off until the very end of the month.
By this time next week, I could be rolling in it.
And won’t I look silly?
Then again, maybe my clients are waiting to be paid by their clients, who are waiting to be paid by theirs.
We could all be in for a nasty knock-on effect.
Tough questions
How are you travelling as the year ends?
Are you waiting to pay or be paid?
Do you have advice or anecdotes?
I’ll be forever in your
debt.
Paul Hassing, Founder & Senior Writer, The Feisty Empire
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Author
Scott Burton
June 24, 2010 at 10:43 am
Great topic Paul.
Our business currently has only two difficult debtors. One we have chosen to work with as they make contributions towards the debt (albeit with weekly prompting). The second is clearly in severe financial stress and probably in the ‘cannot pay’ as opposed to ‘will not pay’ category.
We do now work with a collection agency. Prior to going down the path of handing over a debt to them, we send a final letter explaining what we are about to do stating the date when it will happen. Twice this year that letter has prompted a speedy reply including a cheque. Well worth the exercise and highly recommended.
We hoped this would be the case with our current difficult debtor but it yielded nothing so we did proceed in handing it over to the debt collection agency. There was very minimal cost involved in doing so and they have been following through. Alas still no money has been forthcoming and we are at the point where we must now decide whether or not to proceed to legal action. Somewhat more money and risk involved in this action which we are currently deliberating.
It’s a shame that we, the creditors, probably go through more anguish over the situation than most offending debtors.
All the best
Scott
Author
Paul Hassing
June 24, 2010 at 11:12 am
Thank you for your valuable comment, Scott. I’m afraid I’m not very well today, so I can’t give it the attention it deserves. I hope to be back on my feet this afternoon. Best regards until then. P.
Author
Mel
June 24, 2010 at 11:48 am
Hi Paul
I’ve sure learned a lot about payment terms in my first year in business. Next financial year I’m planning to change my payment terms based on my normal rates if I’m paid in full prior to the work commencing (I’m not talking huge amounts so that’s quite reasonable) and then something like 20% being added for longer payment terms. I’m going to make all this clear in my quotes and when I accept new business. Not sure how it will work out in the long run but at least I feel like I’m being proactive about it:)
Mel
Author
Naomi from MYOB
June 24, 2010 at 12:37 pm
Hi Mel. It’s great that you’re being proactive.
Naomi
Author
Paul Hassing
June 24, 2010 at 2:18 pm
Dear Scott & Mel, I just re-read your comments carefully and I wanted to thank you for sharing your experieneces.
This is a new area for me, and for you to reveal your situations is both generous and educative. So thank you very much!
Should you ever wish to drop in with an update on your respective measures, you’ll be warmly welcomed.
Author
Mel
June 24, 2010 at 2:24 pm
Cheers Naomi and Paul. By saying it out loud, now I have to go ahead and follow through:)
Author
Paul Hassing
June 24, 2010 at 2:26 pm
Good on you, Mel. Your ideas are also an excellent adjunct to our earlier discussion:
http://myob.com.au/blog/coming-to-terms/
Author
Stephen Glanville
June 24, 2010 at 3:30 pm
Dear Paul,
Hope you’re feeling better soon mate…for someone that goes at your consistent pace I’m surprised your body doesn’t demand ‘time-out’ more often…have a well earned rest
I reckon you’ve answered most of your own questions in your excellent post.
If anyone can turn a negative situation with your clients into a relationship strengthening exercise you can 
.
I haven’t been in debt for many years…then, as you know, I tried to start a small business last year. I worked for 2 years towards this epic goal, doing what I and advisers considered all ‘the right things’. Because I was starting with nothing, I did the New Enterprise Incentive Scheme via a Government Service Provider. I earned a Certificate IV in Small Business Management, I wrote a comprehensive, Government approved Business Plan, and set about trying to raise money.
Long story short, I was lent enough money to start the business. When this happened I explained to the Bank that they had only lent me enough to get me to the starting-gate. I said “you’ve seen the Business Plan. I’ll need cash-flow once I reach this point”. The Bank, who prides themselves and advertises loudly of their ‘Small Business Support’, said “Yes, that’s ok, we’ll cross that bridge when we get to it, don’t worry, we’ll look after you”.
Well, as you know, when the time came, they wouldn’t even give me an overdraft. I needed to borrow less than 10% of the ‘on-paper’ value of the business at that time. Since then I have been treated as nothing short of a criminal and the tax payers are picking up the tab…as we already do with the offensive percentage of small business failures. This eminently preventable cost to the country is obscene…
I made arrangements to make what payments I can on the dole and have honoured them. And even then I get threat after threat of legal action from ‘the Bank’, to which my response is always the same – “I have done everything I possibly can. For the sake of a few thousand dollars that you wouldn’t lend me, even after you said you would, I am in this position. One would think and expect that a professional banking organisation with over 100 years of experience, when provided all available information up-front, including a comprehensive Government approved Business Plan, would have enough Business Acumen to either follow-through on a positive assessment as you said you would, or say ‘no’ up-front as you could’ve done…rather than getting me into debt and pulling the rug from under me at the last minute. Go ahead, sue me…I don’t have anything left.”
I’ve since been juggling debts with just about everyone I’ve dealt with and I’m still trying to rebuild my business with less than no money. I’ve been living without hot-water for the past 10 months while I try to pay off power-bills. If it wasn’t for my friends I would’ve starved months ago…
So, I’ve been on the receiving end of a fairly broad range of debt management practices of late. Which ones do I prefer? Those that treat me like a person, that acknowledge my circumstances and allow me the time to do what I can.
I have tried to maintain a dialogue with all of my creditors. So I think that as long as they know that I’m not trying to avoid paying the debt, that I make arrangements, even token ones, which I keep, that a civil relationship can be maintained. This has worked well with everyone except the Bank.
So far, my plan to rebuild my business is going well. I have been studying toward a qualification in Training and Assessing and hope to begin training other unemployed folks into my closed-loop, actually sustainable, beyond-carbon-neutral, democratically operated, enterprise organism in the next couple of months.
If my creditors allow me to continue on the current arrangements until I get some income and I don’t get ‘Small Business Supported’ into oblivion once again, it is conceivable that good ol’ noSh-it! Wood-Fired Pizzas could be on the menu once again by the end of the year.
Cheers
Stephen G
Author
Paul Hassing
June 24, 2010 at 3:38 pm
Thanks for your wonderful update, Stephen. I’m always keen to hear of your progress – fowards, backwards or sideways!
I am feeling quite run down but I’ll be offline for a bit soon. Bring it on!
I LOVED your business plan. It’s one of the few I’ve read cover to cover. I even had a few laughs. If you’ve ever a mind to provide a link to it, newbies would do well to check your style.
Well, time for another Bex. Great to hear from you, Mate! P.
Author
Paul Hassing
June 24, 2010 at 3:39 pm
By the way, the repayment plan described in the book The Richest Man in Babylon is a ripper. Your system sounds similar. Good luck!
Author
Linda
June 24, 2010 at 3:59 pm
We supply retailers where a “30 day” account is the norm.
What is your understanding of “30 day” – 30 days from the invoice date? From receipt of goods?
In retailer’s parlez – ’30 day’ means, if the product is received on the 1st of the month (our worst case scenario)it gets entered into that month’s system, which means 30 days after the end of THAT month the invoice comes up for payment. Due to ‘systems’, payment is made/received during the first weeks of the following month so we can be looking at not far short of 3 months from the time the order went out to actually be paid!
However, the end of tax year (or end of BAS period)is a brilliant excuse for a bright breezy call about how you’re getting all your accounts in order *rolls eyes* and you’re surprised *raised eyebrows* to notice their account must have some how or another ‘slipped through their system’ because according to your records it appears to still be outstanding? Who do you have to talk to about Accounts Payable?
Emails alone fall on deaf deleted boxes ~
Personal call first, with a really helpful ‘shall I email you a copy of the invoice in case its gone astray?’
Author
Paul Hassing
June 24, 2010 at 4:04 pm
Thank you, Linda. Great to have your perspective too! Sounds like you’re speaking from a LOT of experience.
I just spotted a beautiful understatement on that site I mentioned:
‘It is our experience that legal action focuses the attention of recalcitrant debtors.’
Fabulous stuff!
Author
Stephen Glanville
June 24, 2010 at 4:41 pm
Thanks Cobba
…damn fine of ya to say.
Here are a couple of links if anyone is interested:
1) Abit about noSh-it! Wood-Fired Pizza (Size: 676Kb Format: PDF) – This is a brief intended for ‘businessy-type’ folks that may have been interested in engaging noSh-it! Wood-Fired Pizza. It hasn’t been updated for a while but it’s still ok for a look.
2) noSh-it! Wood-Fired Pizza Biz Recipe without Financials (Size: 2Mb Format: PDF). This is a copy of the original Business Plan without the boring and now fairly redundant Financial Projections. It loads up as a double-page spread in ‘landscape view’, so just change the magnification etc as you need to.
I hope someone finds it helpful…
Cheers
Stephen G
PS Bex? I hope you’re joking? Just get into buckets of fresh Garlic, Sage Tea and plenty of good water (if you can find some). And let yourself have some actual rest…you know, like a couple of actual days?
…go and grab a pile of good movies… 
Author
Paul Hassing
June 24, 2010 at 4:44 pm
Thanks and thanks, Stephen. I will!
Author
Sarah Mitchell
June 24, 2010 at 4:54 pm
Hi Paul,
I collect a deposit on all the work I do, normally 50%, and let my clients know I won’t start work until the deposit is made. I think this habit, more than anything, weeds out the people that have no intention of paying. Like you, I’m a writer and there’s nothing I can repossess once it leaves my desk.
Interestingly, the only outstanding debt I have right now is for an account I didn’t bother to get a deposit from. It was all “rush rush rush” so I went ahead and did the work in good faith. Ha! See where that got me? The sense of urgency died an alarmingly quick death once my invoice went out.
Author
Paul Hassing
June 24, 2010 at 5:02 pm
Wow, Sarah; you don’t muck around!
Soon I won’t be able to move in here for the all the great new benchmarks!
Thank you for adding yours.
Author
Susan Oakes
June 24, 2010 at 5:34 pm
Hi Paul,
One thing to remember is that your clients are wanting the cash they are owed and I am sure they follow up. I agree with Sarah, in the future get a deposit as firms such as Market Research have done this for years.
One other point is if you are working for larger companies they have cut off dates each month to process invoices. So if their cut off date is the 23rd of the month and you send it on the 25th it will not be processed until the following month.
Author
Paul Hassing
June 25, 2010 at 8:05 am
Good points, Susan. I really like this deposit idea. Especially for new clients. It’d certainly sort the wheat from the chaff.
I guess I haven’t done this to date because of the ‘professional cringe’ we’ve discussed in other posts.
Still, if a criminal builder can demand a huge deposit before setting to work smashing my bank account, sanity and marriage, surely I too have a right to downpayment for my services! Many thanks for your comment. P.
Author
Paul Hassing
June 25, 2010 at 11:14 am
Seems there’s a bit of hurt out there:
http://theage.domain.com.au/real-estate-news/late-payments-nudge-up-in-april-20100625-z535.html
Author
Ann-Maree
June 25, 2010 at 11:24 am
HI…this is the 1st time I have commented. I work in my family’s importing business and we sell to retailers.
Amongst my various roles of sales rep, webmaster, general admin etc, I also look after calling debtors. As we sell to retailers, the industry norm is “30days” as outlined above and people do notoriously take up to 3months to pay due to their accounting/payment practices.
To circumvent this, we offer 10% discount if invoice is paid within 7days of date of invoice. In order to encourage this, I actually call people on the due 7th day after invoice and ask the customer if they read on their invoice that they are entitled to a discount if they pay today and would they “like to take advantage of the discount?” More often than not, the customer will say yes as they realise that they are getting a better rate than with the banks. It also gives me the opportunity to solve any problems eg. damaged or short delivered stock; slow delivery by the carrier and even sometimes saying that I will give an extra couple of days grace to make their payment and take their discount if there are mitigating circumstances (it’s my call). I now have customers call me to say that their stock has only just arrived and could they take an extra day or so to pay and still take their discount. Of course I say yes as this encourages loyalty to us as a caring supplier who is prepared to look after our customers.
For customers who choose not to take the discount at that time, I give them a week after the due date of 30days from invoice and call them again and politely ask if they have had a chance to arrange payment of their invoice yet and would they like me to email a copy in case they cannot immediately put their hands on the original. Again, many pay at that time or within a day or so.
There will always be some who take their own sweet time – but they also receive weekly phone calls from me/ If I send an email, I follow up with a phone call. It’s the squeaky wheel that gets paid. (sorry about mixed metaphors).
If I am aware that a customer is genuinely having difficulties due to a downturn in business, I will discuss with them about setting up a payment schedule. Many are amenable to this and will try to meet their obligations. Occasionally they will fall behind and then I am back on the phone encouraging payment.
Yes, we do have the odd debtor who has dragged out non-payment and we do take action if they have not actually gone out of business. We will also walk into their store to ask for payment there and then if they are being difficult.
There have been a couple who have been deliberately dishonest with us in their dealings (& we always find that many of our competitors have also been “touched” by these rogues.) These are the people we will actively try to set debt collectors against obtain a court judgements against them.
We believe we have actually been able to reduce our long term debtors by being proactive about chasing money and encouraging a small discount as a reward. Unfortunately, we are forced to be philosophical about the few who “get away”. It takes time and doggedness and understanding to achieve this.
Author
Paul Hassing
June 25, 2010 at 12:03 pm
By Jove, Ann-Maree: that is a fabulous first comment. If you never do another, we’ll still be ahead on points!
But I certainly hope you do return, as your fascinating analysis will surely educate more readers than just me.
I’m very impressed by your smart-yet-dogged-yet-compassionate-yet-fair-dinkum approach.
And I’m extremely grateful that you’ve tabled it for us!
Author
Zoe Simpson
June 25, 2010 at 1:00 pm
Ah the Accounts Receivable … Being in the area of business where you sell services (your time and expertise) instead of tangible products you should be getting your money up-front – before work begins. Otherwise, like Sarah, you won’t see a gleaming cent without creative ‘acrobatic manoeuvres’.
Like Sarah, I too have a payment schedule. 50% deposit before any work proceeds, then three progress payments of the remaining 50%. The first of the two progress payments are due 3 weeks after the initial deposit – regardless of what milestone the project is at. Work will not proceed beyond the first progress payment date, until that payment is received. In my experience this gets the client very interested and involved in moving the project along at a reasonable pace and prevents ‘project stagnation’. The second progress payment follows the previous progress payment schedule. The final payment is due before any finished product leaves my desk. This payment schedule is outlined in the terms and conditions/project brief that the client is required to sign, indicating that they have read and agree to the proposed contract, and mail back to me before beginning any work. I keep those documents on file and refer to them when the client tries to add work not originally outlined in the project brief. Those requests are New Work and are billed as such.
Mels ‘payment incentive’ sounds interesting. By adding a 20% ‘late payment fee’, to slow paying clients, any illusion that disregarding the invoice is ok will be dispelled. Nice one.
So far my payment schedules have been the best litmus test that can be applied to prospective clients. And quickly qualifies those wanting to do business vs those wandering around kicking tires and wasting my time.
Author
Paul Hassing
June 25, 2010 at 1:08 pm
Wow. I continue to learn from my readers with every post.
Where were you when I started in business, Zoe?!
Another savvy approach, generously documented. Thank you very much!
Author
Linda
June 25, 2010 at 1:26 pm
The importance of getting a Terms & Conditions signed before commencement of work is re-iterated in this timely post by Annalisa
http://bit.ly/cvt5Ye
Author
Zoe Simpson
June 25, 2010 at 1:53 pm
Linda, great link. Thanks for sharing that terribly scary story.
Paul, I’ve learned my lessons the hard way, to be sure. I had no mentor to tell me what good business practice was and got burned by more than a few clients in the past. I just wish I accepted sooner, rather than later, that promises are just words until they are fulfilled and have found that a paper trail will insure documented promises can be taken to the bank.
Gah, spending too much time on the internet – got to get back to work.
cheers!
Author
Paul Hassing
June 25, 2010 at 2:23 pm
Thanks, Linda. Will check that with interest!
Author
Paul Hassing
June 25, 2010 at 4:51 pm
Struth, that WAS a gripping tale, Linda. Many thanks for flagging it!
Author
Bambi
June 29, 2010 at 6:26 pm
Just loving some of the suggestions here – in particular Ann-Maree’s courtesy call to offer a discount.
Having been on the end of non-payers over at http://www.thebrew.com.au can I offer suggestions to those who can’t pay? Don’t lie about it. A few times every year we have folk who don’t pay. We ring them to ask if there is a problem. Most of them say there is No problem and they will get to it…eventually. Which is pretty frustrating when it is a business bigger than yours. Occassionally they will say…Well, yes, there is a problem. At that point we then ask them to let us know the best payment terms for them…over 3 months, 6 months…whatever. And we agree to that. We know that it generates good will, it reinforces that we understand small business, and we hope that it genuinely helps.
But the folk who come over dismissive, arrogant, and don’t pay us the respect of letting us know that payment could be a while? Even when given the chance…Even when we initiative the communication with them to offer them a helping hand? Debt Collectors!
Author
Paul Hassing
June 29, 2010 at 6:31 pm
Hi, Bambi. I’m glad to hear you’re digging the scene. This place has turned into a realio truilio resource of late.
I’ve also learned a truckload from this outing. Velvet fist in an iron glove for the win! … Or is it the other way round … ?
Author
Sonia Cuff
July 1, 2010 at 1:13 pm
Paul,
I’ve been without internet at my new home until now, and I’ve been dying to drop you a note about this article. Have you installed spy cameras in my business? We’re feeling the EOFY pinch too, hoping that our debtors will pay us in a timely manner so we too can pay all of our other bills. It’s like you read my mind! I was hoping for some magical turnaround now it’s 1 July … maybe it’ll be here tomorrow instead? Now there is a bit more science to all of it than just hoping, but what an unforgiving ‘circle of life’ that cashflow monster creates!!
-Sonia
Author
Paul Hassing
July 1, 2010 at 1:19 pm
You poor thing Sonia! Could anything be calculated to give you MORE angst than combined IT and cashflow dramas?!
I’m glad to see you back. I had a sprinkling of payments overnight. And there’ve been confirmed reports of a major shower this evening.
I remain ahead of the wolf’s snapping jaws and hope you can do likewise. Thank you for keeping us posted.