HOW TO COLLECT FROM ANYONE, EVEN ENRON!!

How to Collect from Anyone (Even Enron)
Thirty ways to get paid within 30 days.
By: Ilan Mochari
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Not a day goes by that Bob Fisher doesn't thank his lucky stars for Nettie Morrison. But this past March 21 he was particularly grateful that she worked for him.
That was the day that Foresight, Fisher's 50-employee software company in Dublin, Ohio, received a $1,635 check from Enron. The very Enron that, 109 days earlier, had filed for bankruptcy.

Yet the check, which fully covered Enron's renewal of a one-year licensing contract with Foresight, came to Morrison, the company's accounts-receivable specialist, as though it were business as usual.
How did she manage to wrest payment from Enron when so many others couldn't? Preventive diligence. Enron had been a Foresight customer since 1997. Beginning almost a year ago, when the news of Enron's accounting irregularities first broke, Morrison spoke to her Houston contacts almost weekly -- even though the contract didn't expire until February 2002. Using her internal connections, she worked her way to the Enron employee with the power to pay up. By starting early, maintaining good relationships, and remaining persistent, Morrison got her payment.

If you've been a player in the small-business arena this year, you know that getting paid at all, let alone on time, has become a tough assignment -- even if your customers aren't going bankrupt. Consider what happened to Rolf Albers. One of his big customers had the audacity to "declare a no-payment period," he says. "For the 25-day period between May 15 and June 8 they were simply not going to cut any checks."

Albers isn't alone. Of the small-business owners who responded to a recent Inc.com survey about collections, 61% said getting paid was more difficult this year than it was last year. We can't rectify the economic environment, but we can help on the collection front. Thanks to the assistance of such collection veterans as Morrison, Albers, and others (see "The Collectors," below), we've assembled the following list of 30 collection tips. Can we guarantee you'll always get paid within 30 days? We wish we could. But follow these road-tested rules, and you're bound to see some real improvement.
Here is n° 1 to 9.

1. You do the math. Foresight's invoices contain the following phrase: "If paid by September 30, your cost is x; if paid after September 30, your cost is y (invoice amount plus interest)." Morrison found that specifying what the amount of interest would be -- as opposed to merely stating that 1.5% of the charges would be appended every month -- made a huge difference in how quickly customers paid up.

2. Stay consistent. "The language on the invoice should match the language on the contract the customer signed," says Tracy Wald, chief financial officer at consultancy Leonhardt Fitch. That way there's no excuse for customers to claim confusion over precisely what they are being billed for. That is especially important if you sell an unquantifiable service like branding, as Wald does.

3. Work off milestones, not months. Avoid billing at monthly intervals if you can. After all, you're not the phone company. It's far better, says Wald, to tie your billing milestones to tangible deliverables. For example: At some point during a project, you and your team give a major presentation to a client. Don't wait until the end of the month to bill for it. Instead, use the presentation date as a milestone in your billing cycle. Which relates to ...

4. Stagger your billing. Don't mail your invoices on a set schedule. When possible, try sending them out so that customers get them a day or two after receiving your product or accepting your service. That makes your job a whole lot easier when following up with collection phone calls. If you've followed tip #2, your customers will have the perfectly worded invoice in their hands when your service or product is still fresh in their minds.

5. Don't let last be least. The hardest check to collect is often the last one, since that's when the job is complete and your negotiating power is reduced. So Richard Larkin, CEO of staffing company Larkin Enterprises, is careful about when he mails out his final invoice. He plans for it to arrive while his workers are still at a job site. If his customers take too long to pay, Larkin has the option of pulling his workers off the job before they complete it.
Practice Applying Pressure

6. Know your customer's stress points. If you can't directly pressure your customer, then pressure your customer's stress points. Larkin does that in extreme cases by calling for work stoppages. Many of his customers are general contractors who have been hired by large utility companies to build or overhaul a power plant. He knows that if the general contractor isn't paying him, then he can threaten to cut off the contractor's supply of employees. The utility then gets upset at the general contractor, because without Larkin's employees, the contractor usually fails to meet the utility's deadlines. And Larkin also knows that contractors can rarely afford to alienate their large customers.

7. Take legal action. If things get really bad -- if a customer breaks a promise about making an ultralate payment, for example -- then Larkin places what's called a "mechanic's lien" on the utility's property. That's when the utility (again) gets angry at the general contractor. "It tends to cause a rift between them," says Larkin, who adds that for both parties the prospect of a mechanic's lien is dreadful. "Just the threat of it usually accomplishes the mission," he notes. According to Bob Edinger, contract manager at Larkin Enterprises, the cost to file a mechanic's lien is minimal.

8. Revoke privileges. Rolf Albers of Albers Manufacturing Co. has been in business for 23 years. One thing still baffles him: "If I went to Sears today and wanted to buy a refrigerator, they would make me pay today, in one form or another," he says. "But a small manufacturer with no track record can call me, wanting $1,000 worth of equipment, and they think they can wait 90 days to pay. It's a stupid system, but that's the way it is." So Albers does his best to prevent his customers from taking advantage of "the system." If a customer gets too far behind in payments, Albers immediately converts that customer to COD status going forward. Unless it's one of his big customers. In that case, "they pay when they feel like it," he says.

9. Just drop by. If you don't receive a scheduled payment, you might call your customer and ask, "Where's the check?" Whereupon your customer might say: "It's right here. It's going out in today's mail." To which, all our experts agree, you should always, always reply: "Don't bother sending it. I'm going to be in the neighborhood today. I'll pick it up." That simple tactic might be the most effective collections procedure out there. Larkin says he once visited his biggest customer, an international energy goliath, and came away with a $3.8-million check. Albers recalls walking out of a customer's office with a check "in the $10,000 range." Richard Kadet, a veteran CFO who works for the Brenner Group, also recommends making collection visits, especially for large invoices. And it doesn't always have to be the CEO or CFO who makes the visit. "For out-of-the-way customers, your salesperson in that territory can personally go for it," he says.

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