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Making ends meet
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December 22, 1999: 1:02 p.m. ET
Juggling to pay employees on time and receiving late payments from clients?
By Jane Applegate
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NEW YORK (CNNfn) - "The check is in the mail," has become a big joke for many business owners waiting patiently to be paid by clients and customers. Despite 1999's roaring economy, many entrepreneurs complain their clients are paying slower and slower.
"Most of my bookkeeper's time is trying to get us paid," said the owner of a small, Florida-based market research firm, whose largest high-tech client owes him $500,000. "You get a different story from everyone you speak to. Most of the time, you have to start the payment process over and over again."
He asked that his name not be used because he's hoping to be paid in full and keep working for the client, despite the aggravation.
"I add 2 percent interest if an invoice isn't paid in 30 days, but it's a joke," he said. "My client just says, 'Make it due in 45 days.' ”
To avoid closing his doors, the owner sold personal stock worth $50,000 to meet his recent payroll and office expenses. His basic problem is that in order to do market research, he has to pay people up front to review and comment on new computer products and services. He not only pays the participants, but must pay for the meeting space, the videotaping equipment and travel expenses for his staff ... all before his client has paid him a penny.
"Our research helps clients figure out what combination of features would maximize the success of the product in the marketplace," said the owner, who founded his firm in 1983.
To make things worse, his major deadbeat client now relies on an outside firm to process all payments.
"That company shut downs and doesn't accept e-mail or voice mail several times a week because things are such a mess," said the Florida business owner. "It's so insane."
While most professional consultants refuse to begin work until they receive a partial deposit, he claims he can't because his competitors don't.
"If we asked for a deposit, we'd have no business," he contends. "The clients say they can't dispense money without a purchase order number (P.O.) number."
Although he's told to bill 50 percent when he starts the project and 50 percent when he turns in the final report, in most cases, the work has been completed before the first P.O. is issued, creating a cash-flow disaster.
The real question: Why should a business with eight people be paying the expenses for a multibillion-dollar computer maker?
"Maybe I'm a wimp?" he asks. "We get letters from them saying, ‘This is our payment policy,' and you have no leverage," he said. "The people we deal with are the little people with no power."
Despite the aggravation and stress, he says, "I think I will ultimately be paid."
Rather than getting upset, credit and collections expert Eric Shaw suggests taking strong action against deadbeat clients, no matter how big they are.
"Have the manager of your bank call your creditors and their bankers to find out what's going on," suggests Shaw, president of New York Credit in Marina del Rey, Calif.
Shaw, whose motto is: "If you give good credit, collections will follow," also recommends putting all requests for late payments in writing. Send the letters via an overnight delivery service, or use something with a return receipt from the Postal Service. You want to document all your efforts in case you do end up in court.
"Tell them, ‘We must have this amount by such and such date, or the work will not be completed,' " Shaw advised.
Rather than suing big clients, he suggests filing what's called a "writ of attachment" against them. The rules vary from state to state, so check with your lawyer. Plus, this is a very dramatic step. If you do want to look into filing a writ, it's easy to find a company's bank account and branch by looking at the front of a check they've sent you. You can also order a Dun & Bradstreet credit report, which usually includes a company's bank information.
"Suing a client can take years," said Shaw. "Instead, for about $2,000, you may be able to get a writ of attachment within 60 days. It will bring the company back to the bargaining table."
This tip and others are in Shaw's book, The Game of Credit: Managing Your Receivables for Profit.
If attaching your client's bank account seems extreme, try some preventive medicine by buying credit insurance. The biggest issuer is Baltimore-based American Credit Indemnity Co., but there are others. The insurance premium costs about 1 percent of the sales you want to insure, according to Shaw.
"It's very cheap, but your receivables must be at less than 30 days to apply for it," he said, adding that the best thing about credit insurance is that the insurer pays you within 60 days. Then, it's their job to collect from your creditors.
Shaw has another great tip: Make your bank the beneficiary of the credit insurance policy. Then, ask your banker for a lower interest rate on your commercial credit line or loan. "The one (interest) point you save pays for the credit insurance policy," said Shaw.
Slow-paying clients can damage all kinds of small companies. Carla Ceasar, president of Miami-based Egg Entertainment, faced a cash-flow dilemma recently when one of her largest clients changed its payment schedule from 30 to 60 days. At the time, the company owed Egg Entertainment close to $10,000.
"Initially, you are so excited because a big network is using your services," said Ceasar, a former producer for Bloomberg Television. "Eventually, it turns sour when you realize that you are not getting paid promptly."
When no check arrived on the usual payment date, Ceasar called her contact to inquire.
"I was given four different numbers to call. No one had any answers as to why we weren't paid," recalled Ceasar. "Finally, an executive in New York called someone in another state who told him the payment policy had changed from 30 to 60 days without any notice."
This unilateral change created a major headache for her small production company. Like most freelance producers, Ceasar pays for her own travel expenses, plus pays anyone she hires to help her produce segments, including camera operators and makeup artists.
"Seven or eight thousand dollars may seem like small potatoes to a big firm, but it means a lot to me," said Ceasar, who declined to name her client because she wants to maintain the working relationship.
"As a small-business owner, you are held hostage by the payment policy," she said. "But honesty is the best policy. If your clients are clear about their billing and payment policies, it helps. If they keep you in the dark so they can hang on to the money, it creates bad blood -- and that's not healthy, financially or professionally."
Jane Applegate, a syndicated columnist and author of 201 Great Ideas for Your Small Business, covers small business for CNNfn. "Succeeding in Small
Business" appears Wednesdays. 
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