When 30 days become 45, then 60 and eventually 90, small-business owners face a harsh choice. They can press aggressively
for payment of delinquent bills, knowing they’ll likely lose precious customers. Or they can write off bad debts until
they become crippling.
It’s an increasingly common dilemma in the recession. Some local entrepreneurs have turned in frustration to the courts for resolution of payment disputes, with decidedly mixed results.
Meanwhile, others are enjoying success through pre-emptive efforts to communicate with their customers before bills become past due. Gentle reminders don’t always work. But ignoring the problem never does.
“What we coach our clients to do, and what we help them do, is make the call caring, empathetic and understanding,” said Bob Compton, CEO of Indianapolis- based automatic voice messaging firm Vontoo Inc. “Because a collection call that hammers someone in this economy is not going to get you anywhere.”
Slow bill payment is a growing national problem in the recession. Small businesses are paying their invoices 25-percent slower than a year ago, and 20-percent slower than the overall business average. That’s according to a report released this month by Quincy, Mass., business analytics firm Cortera Inc. The report was based on a survey of 260,000 companies with 500 employees or fewer.
Before the recession, small businesses paid their bills about as quickly as big businesses did, Cortera found. But small businesses now have a 55-percent higher rate of overdue bills than their larger counterparts.
Looking to the long term
It’s a trend Vontoo is capitalizing upon. The startup’s niche is distributing personalized, pre-recorded phone and text messages to a business’s customers. Vontoo is gaining traction in the recession by focusing on sending friendly reminders just before its clients’ bills are sent, and again shortly afterward. Vontoo has had its best results so far with companies in the rent-to-own retail industry and with university bursar offices.
The messages begin by pointing out that the creditor knows this is the most difficult economy in 80 years, then underscore the importance of the long-term business relationship. They conclude with an electronic prompt offering to work out a more lenient payment plan.
The immediate payoff, Compton said, is a higher rate of bill repayment. But perhaps more important, he said, is that a gracious approach can cement clients for life.
“How you treat your customers that are having credit challenges speaks volumes about what your business ethics and philosophy are,” Compton said. “If you treat even tough collections with respect and with good faith, you’ll likely keep that customer long term.”
That’s how Michael Granger has approached tardy bills. He owns the local franchise of Florida-based direct-mail firm RSVP, which specializes in sending postcard advertising to high-end homes. His clients include landscapers, kitchen remodelers, pool installers, cosmetic surgeons and high-end restaurants.
Before the recession, Granger said, he never had any problems extending them credit. But that has changed in the last 18 months.
“It’s really because my clients are getting beat up,” Granger said. “They’re getting slow pay to them, and it all rolls downhill.”
Granger said he’s extremely reluctant to “pull the trigger” on a formal collections process. For now, the majority of his customers aren’t intolerably delinquent. Mostly, he sees customers stretching terms from his customary 21 days to 45 or more.
And Granger would rather work individually with those who are in arrears, to avoid damaging relationships. Even so, he has had to write off some debts entirely.
“Usually, it’s when they close their doors and file bankruptcy,” Granger said. “Otherwise, it sits on my books.”
A focus on friendliness
So far, Brandon Marler, owner of Westfield information technology firm 411 Technology Solutions LLC, has managed to avoid bill-payment issues by incorporating affable reminders every time he interacts with his customers. Rather than call them outright about debts, Marler looks for excuses to follow up on technical questions.
“Fortunately, I haven’t run into a situation where I felt like I wanted to sever the relationship because they’re not paying,” he said. “My advice would be to integrate it into another friendly conversation.”
Rather than deal with the touchy subject of overdue bills, some small businesses are turning the matter over to somebody else. Jennifer Foster, owner of Westfield bookkeeping firm Foster Results, handles invoicing and collections for about 100 local small-business clients every month.
Across the board, she said, she’s seeing small businesses attempt to stretch payments along as far as possible. Foster said she understands why. These days she spends much of her time crafting plans for partial or extended debt reimbursement.
“Nobody wants to not pay their bills. Nobody wants to stop working for their customers. But there has to be a plan in place if it’s taking more time [to pay bills] than before the recession,” she said. “It’s OK to say, ‘I’m having cash-flow issues.’ It’s not OK to avoid the situation.”
Photographer Leah Severson, co-owner of L. Severson Portrait Art in Westfield, never had collections problems before the recession. She used to charge all her fees upfront. But this year, for the first time, her customers are asking for payment plans, or to pay half now, half when their photos are ready.
“I appreciate the fact that, despite the fact that times are hard for a lot of people, they’ll still come to get the portraits done,” Severson said. “They scrimp and save somewhere else.”
Severson’s been willing to extend credit to many of her customers because she’s gotten to know them personally. Families who brought their firstborn child for formal portraits a few years ago often return at regular intervals, then come back again when more children come along.
But this year, for the first time, a customer’s check to Severson bounced. Severson attempted to work with her client, but all she got for her patience was more bad checks. Ultimately, she turned the matter over to the Hamilton County Prosecutor’s office, which successfully collected the money.
“It was not without a lot of angst, I will tell you that. I lost some sleep over it,” she said. “But at the end of the day, if I’ve already paid for the pictures, I do run a business. We have bills to pay, too.”
David Quire, co-owner of Indianapolis-based Old World Masonry, hired a lawyer to help him collect $200,000 he’s still owed for a partially finished downtown condominium project.
At first, the developer merely stretched out his payments. Quire tried pleasantly pressing him, and in response received a series of promises for over a month. When the developer boarded up his on-site office and walked away, Quire said, he had no choice but to file mechanic’s liens. So far, those haven’t helped.
As a result, Old World Masonry has had to let some of its employees go, leaving a staff of 12. If he ends up having to write off the debt, Quire said, he’ll need to generate at least three times as much in new sales to break even.
“In the future, I’ll make sure a job of that size is bonded. That would be my biggest lesson,” he said. “And really, truthfully, be really careful with people you haven’t dealt with in the past. Watch [whom] you do business with.”•