This is one of the top ten explanations we get as a commercial collection agency. Our biggest fear when we hear this is that it might be true.
Since the financial crisis of 2008, many small businesses have been stiffed by their customers. When that happens it can have a domino effect, as many small businesses do not have the financial resources to survive a big write-off. This is especially true now as most business owners do not have equity in their house that they can borrow against to fund their companies.
In this scenario, a company may not be able to pay its old bills until they collect on their delinquent receivables. Very few companies have large profit margins, so current business is paying current bills and salaries, with very little if anything left over.
The first thing we do when we hear “we’ll pay when we collect from our customers” is to determine if this is a legitimate explanation or simply an excuse. The key to finding out is to get a conversation going, ask probing questions in a non-threatening way, and get to the details. Is it one large receivable? Two? How much is owed? How long has it been owed? What is the explanation they are giving you as to why they can’t pay? What are they doing about it?
All too often, we are able to determine that this is more excuse than explanation, and then we collect using the appropriate techniques. But if it is an accurate description of reality, then the debtor’s problem in getting paid is our problem in collecting. At that point, the only way to get money is to help them solve their collection problem or to find pressure points that will get them to start allocating some of their cash flow in our direction.
We advise our clients that if they determine this explanation is real, it is more cost effective to turn these claims over to us sooner than later. If it is a situation that requires monitoring, patience, and hope, then our clients are typically better off focusing their limited resources on current customers while we perform this task at no cost until there is success. We are also are more likely to have the knowledge and resources to help a client’s customer solve their collection problems as well as finding the pressure points that can result in payments while these issues persist.
If our clients learn this is just an excuse and they still can’t collect, the sooner they get professional assistance, the dramatically higher the chances are that the money will get collected. We all know that collectability declines rapidly with time, so the sooner a problem is properly addressed, the greater the chance of having success.