Collecting Your Receivables When Your Customers Are Having Cash Flow Issues

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) April 26, 2011 -- If you have been in business for longer than 10 years, you have seen recessions before. The Internet bubble burst in 2000; there was a recession in the early 90s; the early 80s saw a recession and sky-high interest rates. Some will remember the problems of the 70s.

According to John Pillow, CEO of United Mediation Services, “Things overall have stabilized, but they’re still much worse than they were prerecession. But there is some good news for U.S. businesses, failures are declining overall, with formal bankruptcy filings in 2010 down more than 5 percent compared to 2009.

Economic downturns are cyclical and expected; but that doesn't make collecting receivables any easier. Bankruptcy cases filed in federal courts for fiscal year 2010, the 12-month period ending September 30, totaled 1,596,355, up 13.8 percent over total FY 2009 bankruptcy filings of 1,402,816, according to statistics released today by the Administrative Office of the U.S.

What industries are most likely to suffer bankruptcies? In 2010, transportation had the highest failure rate, followed by construction, financial services (pushed by the high number of bank failures), automotive and manufacturing.

The percentage of business payments that are delinquent (more than 90 days past due) stabilized at around 5 percent for all of 2010. There’s good and bad news there, according to Andrew Lobsenz, senior vice president of global D&B risk-management solutions quoted recently in CFO Magazine.

While delinquent payments accounted for about 2% of all payments in mid-2007, they hit a high of 6% at the end of 2008, when the recession was in full swing. The industries with the highest delinquency rates were manufacturing, automotive, telecommunications, construction and wholesale.

When it comes to states, Nevada had the highest rate of both delinquency and business failure, thanks to steep declines in housing value and tourism. California had the second-highest business failure rate, while Arizona and Utah high delinquency rates.

“What do these trends mean to you?”, asked Pillow. “If you have customers in one of the industries with high delinquency rates, be more cautious about whom you extend credit to. Stay on top of your collections process and work to keep accounts receivable coming in a timely fashion.”

Pillow continued, “If you’re in an industry with high failure rates, keep an eye on your competition. What weaknesses do they have that you could take advantage of? What challenges might push them over the edge? When a competitor fails, you might be able to grab their customers if you’re poised to move quickly.”

"The biggest issue is managing the company's cash flow; knowing if and when you have been paid," says Pillow. "It's hard to manage the financial commitments for your business if you don't know how you’re your customers are doing; and if and when the money is coming in."

Cash will continue to be tight for America’s small-business owners in 2011 as banks are held to tighter standards, making it difficult to get startup capital or to expand existing enterprises.

In order to fight tight cash small businesses must manage the cash flow, the receivables need to keep coming, even if the customers are suffering poor cash flow themselves.

There are five major points to keep in mind for collecting those ever-important receivables, even in hard times:

1. Stay in constant contact with the customers who owe you money. If a customer has limited cash, they'll pay the people that are pushing for the money before the people who are not. Commonly called the “Squeaking Wheel”. Call the customers, be nice and professional, and build that relationship over the phone.

2. Study the payment history of your customers, and take note if any start to change. “If a company usually pays in 34 days, but one month pays in 38 days, and the next month pays in 41 days, concentrate on that company,” said Pillow. "Patterns–Patterns–Patterns. You have to be constantly watching how your customers are doing and watch the aging of receivables and looking for weak account debtors."

3. Can the Debtor pay?
“Determining whether a client has the ability to pay, or the desire to pay is an art, not a science. I think something is better than nothing," says Pillow. Utilize various tools to assess a customer's health, including commercial credit reports and Dun & Bradstreet reports to make an educated call about whether the business is in financial distress or not.

4. If a customer does file bankruptcy, sit tight.

In a Chapter 11 bankruptcy a company stays open while it tries to reorganize. Creditors, including your business, will be invited to join a collections committee, but secured lenders, like banks, wield the most power. You'll be among those to whom that the customer presents its reorganization plan, and hopefully that plan will allow the customer to start turning a profit. If and when that happens, y

commercial debt recovery     commercial debt settlements     corporate debt collection     debt collection agency