Entrepreneur's Journal: What to do when your customers don't pay

Great advice. I would love to know where I can find some good resources for all the basics of accounting for an entrepreneur. Not just accounts receivable, but the basics of ledgers, income statements, balance sheets, etc.

jmanley

I just wrote a response post here: http://creditincomeprofit.com/blog/lending/theory-rent-collect-deliquent/

I make a special reference that leaving the ARs to age is the same as giving them an interest free loan at an expense equal to your own cost of capital.

In many cases small loans might not be cost effective to collect, due to the cost of collection. Be careful and check the credit worthiness of the lender before handing over money.

http://www.youtube.com/watch?v=xKlMl4II3_0

I use Quickbooks Pro for all my accounting work. It's easy to use and you can write checks and design reports too. It's great to be able to print a profit and loss statement to take to my CPA. Contact me privately for more information. Maryland Secretarial Servivces, Inc. www.webmss.com

Collections agencies are at best a boogeyman. By the time you get someone in arrears, odds are good they've already dealt with collections on other issues. In other words they have no fear of collections agencies.

Despite media propaganda to the contrary, collections agents are pretty much powerless. If the customer doesn't care about their credit rating or is already in trouble, it won't matter.

A letter from a collections agency is basically an empty threat. I've sent you a letter and if you don't pay, I'll, I'll send you yet another letter.

After fees and the like, I've broken even with collections. Meaning that the few customers who did pay was enough to pay off all the fees I paid to get the others who didn't pay.

Lessons I learned for my next business?

1. Do business by credit card whenever possible.

2. Check the address of your customer with county records. If they are renters they 90% immune from bill collectors. Never do a penny of service or product to a renter in arrears.

3. Beware of cash on the first job, especially a renter. I've had a bunch that pay cash to establish a track record. Then they try to go into arrears and you have no financial information to track them with.

Is your business having trouble collecting past due receivables? Try us.
www.dbfcc.com

I used to handle credit for a company that sold Musical instruments and later furniture. If you make the saleman fill in all the lines on the credit application, and you call to check all the phone numers and addresses before the product is delivered, and you get a 30% or larger down payment, loans don't go bad. (And with 30% down cost is ussually covered so if you have to repo resale all profit.)
Hold 1/2 of sales commission till 3 payments recieved, and sale stop trying to sneak bad risk in.

This sounds much better than that older method of four men with baseball bats.

I'm not in total agreement with your statement to use a collection agency as a last resort and that if an agency isused you will only see pennies on the dollar. This is not the case in many situations. And surely should not be a generalized statement in any way. Some very old accounts, that may be the issue, but each agency works differenlty. Obviously I"m bias as I do own a colleciton agency and am a member of Michelle Dunn's Credit & Collections online forum. However, I've been at both ends of this dilema havning worked in an office dealing with past due accounts as well as from the agencies stand point. I think the key points are diligents without harrasment or strong arming, and even more importantly is follow thru. Of course there is exceptions to every rule and long time good customers may be dealt with in appropriate manner. But any customer,client or patient that has failed a payment arrangement should be turned over to an agency promptly or at least no more than 90 days old. Never tell someone your going to turn it over if you have no intention to, and be sure to follow thru with forwarding it once you've given a dead line. As a business owner take time to find an agency that will meet your specific needs so that your not just getting pennies on the dollar. And don't look at your A/R issues as pennies either. When you add some of those write offs up each year, you've allowed a lot of currency to slip thru your fingers. You've already written it off..why not take a chance at no expense to collect on % of it..isn't something better than nothing? Plus if and when the economy turns around, some of those that are paying slower now, may be able to resolve their debts with you more promptly and if your collection agency is professional in their techniques, you may not have lost the customer all together and may be able to continue a long lasting relationship. Don't ever rule out an agency..we're specialists in our field...and there are times when a specialist is what you need to get the job done.

Accounts Receivable Factoring

How to Get You Financing When
Banks Have Stopped Lending
One of the biggest challenges that the owners of small and mid size businesses have is waiting 30 to 60 days to get paid on their invoices.

While large businesses can usually afford to wait, small and mid size businesses often cannot. As a matter of fact, waiting to get paid on their invoices, usually effects managements' ability to meet payroll or meet other company obligations. This can be even more frustrating if the business has a number of orders that it cannot fill because cash is tied in unpaid invoices.


How can factoring help you?

Invoice factoring, also known as accounts receivable factoring, is a financial tool that allows companies to capitalize on the power of their slow paying invoices. It enables them to convert their invoices into immediate cash, allowing them to fund their business operations. Invoices from strong credit-worthy commercial clients are excellent collateral, especially to factors. Although most banks aren't interested in accounts receivable - invoice factoring companies are focused on providing financing based upon them. This makes it an ideal financing vehicle for small and mid size businesses.

How does factoring work?
As opposed to most banks that lend against collateral, invoice factoring companies buy invoices (the collateral) outright. The factoring company that buys invoices provides funds immediately, while they wait to get paid by your client’s customers. Perhaps, this transaction is best described with an example:

1. Let's assume that your client sells products/services to Company A and Company B. As soon as they provide their services, they issue invoices.

2. At the same time, your client send copies of the invoices to the factoring company, who purchases them and provides an advance payment for them.

3. The factoring company waits to get paid by your client’s customers. Once paid, any remaining funds are sent back to the company.

The invoice factoring process can be repeated for every invoice issued, providing a flexible line of financing that grows with the business.

How much will a factor advance my business?

The factoring transaction is commonly done as a two-installment sale. The first installment is called the advance and is paid to as soon as the invoices are submitted. Advances can range anywhere from 60% on the low end up to 90%. The average advance is about 75% (for the industry) The final installment, called the rebate, is sent to your client once the invoice is paid.

The cost of invoice factoring

The cost of invoice factoring is determined on three criteria:

1. The credit worthiness of your client’s customers.

2. The length of time your invoices take to get paid.

3. The monthly factored volume. Your cost, actually called a discount in the industry, can be as low as 1.5% or as high as 12%, per transaction depending on these criteria.

How can I determine if invoice factoring will help me?

Generally speaking, invoice factoring will help you if you have a business that has reasonable profit margins or is growing quickly. Mid size companies with 20% or more profit margins or large companies with 15% profit margins can usually do well with accounts receivable factoring. An additional advantage of invoice factoring is that it does not require owners to give up equity - enabling them to grow their company without diluting ownership.

How can earn referral fees on factoring transactions?

Unlike most commercial financing referrals, fees on factoring transactions are paid monthly over the life of the factoring relationship you referred, which can be 1-2 years or longer. Fees can range from 2% - 10% of factoring income. The size of the fee will be based on the size and quality of the transactions referred.

Learning more about factoring:

If you have any questions, or a client who you believe could benefit from factoring, please contact me today.

Tony Clark
www.newvisionsfinancial.com
888 441 5956

Do like the dept of Education--for all college students that do not qualify for minority free lunch education,they just sic the revenue dogs on those poor kids-and you know....Mom & Dad re-finance their home or something.....or else....that way,the government can bail out more deserving folks like aig corporate condom execs at their plush country club offices--after all,its the american way,right?funny thing--the white,english-speaking people are actually the real minority in many parts of this country,but what`s that got us except having to pay for private education so our kids dont get jumped in school....anyway,these are the real collection pros-armed with the power to ruin lives...if not appeased....within 60 days.....so much for borrowing money for college..

What about bringing them to a small claims court for failure to pay?

Anybody know the NY law on this?