Here are some useful tips to help manage your company’s losses in the recession. Although the downturn has changed normal payment patterns, when you see any of these signs, you should act before it is too late.

The Signs

1. Loss of contact. Defined as two broken promises to pay. Accept one promise. The second time, ask in a direct, friendly way if this isn’t the second promise, why it’s late and exactly when you’ll be paid. Other red flags: NSF checks, never in, no answer, on hold too long.

2. Abrupt personnel changes. Your contact leaves. Nonpayment is blamed on personnel shifts. Always assume the worst. Say: “Let me talk to your superior or whomever pays the bills.” Professional bill collectors call daily to get the right person. If they promise to call back, set a firm schedule. No call is loss of contact.

3. Any banking change. If nonpayment is blamed on changing banks, ask for the name of the bank and bank officer. Refusal is a red flag. Call the bank: “I’m confirming that _____ opened an account.” Professional bill collectors also ask if it’s “a satisfactory situation” (the bank may have denied financing), and what banking business is being done.

4. Unusual disputes or stalls. At 30 days: “The check is in the mail.” At 60 days: “Wasn’t that the shipment that. . .?” Probe and question. Genuine complaints are usually prompt and detailed (invoice numbers, etc.). The more vague a complaint, the more suspicious it is. Ask: “Why haven’t I had something about this in writing?”

5. Intimidation. Debtors sensing a non-professional calling may be rude to deter future calls. Ignore it. Stick to the business at hand: nonpayment. Keep probing, but stay polite. Try humor – “Get up on the wrong side of the bed?” Try commiseration – “I know how hard this is. I get these calls and have to tell our vendors when we can pay.”

6. Change in payment pattern. For example, a regular 30-day payer starts paying in 60 days and only after two phone calls. Act now or the next check will come in 120 days. Say: “You’ve always been great about paying on time. Now, 30-day payments come in 60 days. Where are we going?” If there’s no good reason (e.g., a temporary problem), it’s a red flag.

What to do when it’s already too late

Have you had a good relationship with this customer? Will you be forcing him to find another vendor? If so, he will pay them first. Do you want to keep this customer? Too often, unrealistic demands are made on debtors who can’t possibly pay. The debtor then avoids talking to you at all. Why lose money, and possibly a good customer, due to a customer’s temporary, unexpected reversal? Focus on your cash flow, not the customer’s debt, regardless of whether it is $1,000 or $10,000.

Get an order and payment. Offer to help your customer by having him pay cash for future orders with a small amount added on to pay against his accounts receivable balance with you. This may allow him to stay in business and chip away at the debt. You will still have cash flow and a customer. Your customer will remember that you helped through the tough times.

Suggest monthly payments. “You owe $750. How short are you of paying the balance?” It’s hard for people to say they’re short the full amount. Suggest monthly payments and ask how much they can pay. If the figure is too low, such as $20 a month, take charge of the conversation.

Suggest a payback schedule. “I can put you on monthly payments, but the maximum is 7-8 months at $100 a month.” Be ready for resistance: Have a counter-offer of, say, $65 a month for a year. If you decide to charge interest use rates charged by local banks but check legal limitations. People pay back debts accruing interest faster than no-interest debts.

Get a note and a partial payment. On $750, get a down payment of 10% ($75). By getting a payment right away when they come in to sign the note you will have won half the battle. The other half: Get the first few payments on time. Once you have a note and several payments, the rest will come. On a large debt, say, $10,000, consider a balloon payment. Accept $200 a month for 18 months (includes $1,600 for interest) then a large (balloon) payment of $8,000+ in the last month. If, after 18 months, they can’t make the $8,000 payment, renegotiate and extend the term. You get at least some cash flow instead of none in the meantime.

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