Cheque's in the Mail

The professionals who handle bankruptcies arerestrict people somewhat when it comes to providing
among the busiest people in our part of the world.negative information. You will need to listen
This is a sad reality. Financial trouble and bankruptcyattentively and read between the lines to get the
visably turn a person's life upside down. What is lessreal answers. Sometimes your real answers are
obvious is when anyone suffers financial difficulty orembedded within a reference persons' reluctance to
bankruptcy, everyone is affected. Families, friends,answer questions.
employees and vendors - from the small garage4. Build in safety.
down the street to the giant credit card companies,Take small risks with new or unknown clients.
banks and tax collectors. The entire community isDetermine a level of loss you can live with, extend
affected.that amount of credit to the client and observe how
To those of us who operate small businesses, thisthey manage it. Do they pay? If so, do they pay on
means "credit with caution". The easiest way totime, every time? If they can't pay, do they call you
avoid risking bad debts is to stick to cash sales.or do they wait for you to call them? Your gut will
Unfortunately, this is not always possible. Some typestell you whether to take more or less risk with the
of business require that you take on the risk ofclient.
extending credit to customers.5. Collect your receivables promptly.
Our organization has been in the business of providingFollow up quickly when a client defaults on a payable.
training now since 1987. Our training contractsBe fair but firm in your approach. Sometimes people
typically range in value from as little as a coupleand businesses just need a bit of room to work
hundred dollars to ten or twenty thousand. Thethrough tough times - sometimes they have no
nature of the training business is that we really needintention of paying you and use any extra time to
to trust that clients will pay in order to stay inget their friends paid ahead of you. The most
business. Most of our clients insist that we provideimportant thing to learn about a client is whether
the training and get paid afterwards. We used tothey have integrity, whether or not they honour their
provide all training first and invoice at the end of theword. When dealing with people who have integrity,
training. This is the "play before pay" approach.you can afford to take a bit more risk.
In the first ten years of business we never lost a6. Never enter a business deal without having an
dime due to bad debts, then things changed. Duringagreement signed by both parties.
the latter half of the nineties we wrote off tens ofYour agreement should clarify costs, deliverables and
thousands of dollars in bad debts. The first hit wastimelines. Clear communication pays dividends when it
when we lost about $8,000 to a not-for-profitcomes to satisfying clients. Although a verbal
organization. Over the next couple of years weagreement is apparently legally binding, you and I
managed to lose more than $10,000 to a threeprobably don't want to have to spend the money
different entities. Apparently we were slow learners.necessary to prove what you said, they said and
We then took another hit by a client who simplyvice versa. A signed agreement will lend a lot of
refused to pay us for approximately $40,000 worthcredibility to your case if you end up having to use
of work completed during 2001. We had seriouslythe legal system to collect your money.
drifted from doing good business to too many7. Those who default on paying their bills will create
dosages of bad business.bad press for you.
Although we were angry about being $60,000 shortBad press creates the opposite of goodwill. In all
of where we should have been, we were too busycases where clients have defaulted they immediately
to spend much time stewing about the losses. Webegan slandering our organization. These comments
could spend more time pursuing the culprits, but werange from libelous personal attacks to well placed
do not wish to spend a lot of time fighting legalscud-like complaints calculated to devalue the service
battles, spending good money after bad. Ultimatelywe provided and did not get paid for. It's like a
those unpaid amounts will have far less affect on usjuvenile attempt to make themselves look better
than they will on those who don't pay their bills.somehow by making us look bad. This would be
We're focused on building goodwill and not dwellingtroubling were it not so transparently pathetic. Yes,
on the negative aspect of this challenge.we could sue for liable, but when we're in our
We are a little wiser and lot more wary these days.lawyer's office, he's making money and we're not. So
In the interest of staying in business, we have had tofar our strategy has been to stick to the high road
tighten our belts, our systems and our level of trustand keep building goodwill.
with certain clients. If you are in a business that8. Fortress.
requires you to take on the risk of extending creditEverything we do to strengthen our team is what I
in order to secure contracts, you may be interestedcall fortressing. Once you have done all the work to
in the following points.find a number-one client and build a trusting
1. Keep a classy client service attitude.relationship with them, treat them like the pure gold
Use the 95/5 rule. Do not let the 5% who maystars they are.
default cause you to apply a poor client service9. Keep records.
attitude to the other 95%. You can probably trustThis pertains to all records leading up to and during
95% of your clients and it is important to manageyour client transactions. But specifically, keep a record
those relationships with respect and trust. If you findof clients who do not pay and communicate that
that the negative 5% control your attitude, it'sinformation to your team and your friends. Those
probably time to get out of the business.you tell are less likely to fall prey to that individual or
2. Rate your clients.business again.
Any system can serve the purpose. Here is one way10. Build goodwill.
to do it:Good businesses succeed because they create value
- # 1 client - no risk - extend full creditfor their customers. The most important thing you
- # 2 client - low risk - extend limited creditcan do in the face of bad debts is to continue to
- # 3 client - high risk - pay before you playserve your best customers in the very best way
- # 4 client - time waster - no play at any priceyou can. Never compromise your level of service to
3. Do your research before extending credit to apaying customers. Give each customer the best value
client.possible with every engagement.
Get signed permission from the client to do a creditAs stated earlier, the best way to avoid bad debt is
check on the client. Ask for credit references andto insist on cash sales only. If your business drags
check those references. Ask questions such as:you kicking and screaming into the role of creditor,
- "Do you extend credit to this person or business?"keep your head up.
- "Does the client pay you on time every time?"It will take a cauldron of caution, a ton of trust and a
- "How much time or effort do you have to investpound of patience. If you tread down the play now
to get paid by this client?"pay later path, you too will inevitably one day hear
Be aware that there are strict laws governing thethat dreaded expression, cheque's in the mail. If
sharing of information about clients. This tends toyou're careful there can be life after debt.