How would you like to free up more time and money for business development by eliminating bad debt collection and chasing down late payments? Collecting on accounts receivable is a common subject for discussion among independent abstractors. Here are 12 ways to spend little or no time on chasing bad debts, and spend all of your time on what you like doing most, and what matters most which is cultivating valuable new clients and doing great title research.
Payment and collection problems are not really an accounting issue, they are a sales problem. Taking on poor quality customers and not creating a firm expectation at the time of onboarding are the two biggest factors in ending up with a collection issue. At least half of the effort on collecting bad debt happens before you even take an order from a client. A subtle inquiry about the clients background mixed into the sales conversation can be the most important factor in preventing issues with payment well before it becomes a problem.
- Inquire about the clients current title search resources. Who has been doing their searches to date? What is their current volume? Why are they switching? Understanding their need for a new vendor can help your sales efforts with the contact, and also notice any red flags for avoiding a non-paying client.
- Ask about their payment intentions early, at the same time the client asks about pricing and TAT. You can even imply that your turnaround time is faster for clients who pay quicker. What are they predicting for their payables time? At this point in the conversation they will be likely to offer a really optimistic payment schedule in order to get your best price.
- Ask for a copy of their E&O, licensing, and/or title underwriter documentation. Companies with these credentials are end-user clients and helps you avoid dealing with brokers who may have less working capital to carry them through cash flow needs. This will also help ensure that the client at least has primary coverage so that in the event they make an error in using your title research it will be less likely for the abstractor to have liability.
- Obtain their corporation filing and the names of principals. Cross reference the corporate officers and company name to see if there are other firms which have been used in the past to avoid paying vendors. Look to see how long the company has been established. It should be easy for you to look this info up based on what we do everyday for a living!
- Establish a firm payment schedule. Right from the beginning, have the client agree to a payment date. “Upon delivery” or 20 days is best, and avoid anything longer than 30 days. Most clients intend to pay their bills, but when money stays in their pocket for more than a month, it is tempting for them to start thinking about it as theirs. It is a subtle psychological mental shift, but it does happen. Once you and the client have agreed on a time for payment. Ask, the following question: “Can I count on you for that?”
- Get a clear understanding of how payments are processed. Know the mechanics of their internal system. Who gets the invoice? Who approves it? Who writes the check? How is it sent? How does each person pass the information along to the next? Get the contact names, titles, phone numbers and emails for each of these steps. Draw yourself a flowchart or organizational chart to keep in that clients records. By visualizing each of these the abstractor can verify “stories” offered later when a check is late. Plus you will have multiple contact people to contact besides the vendor manager.
- Never accept orders for payment based on “when the deal closes.” A company who wants to pay when they get their money from closing is either not operating with enough working capital, or wants to use you for free financing. It also puts you at the risk of how well they manage clients and deals, and you have no idea how good they are at that.
- Keep in close contact with the client about TAT of the order, and of the payment. During the search process keep the client in contact with regular status updates on the search. It demonstrates you are professional and have expectations of professionalism. Then when it comes time for payment check in with them to make sure your check is in the pipeline the way it should be according to what they promised. This way you’ll know way in advance if there is a problem.
- Offer ACH transfer. A method for the client to pay you with the press of a button eliminates many moving parts and human labor intervention to the system. An automated payment is a good payment.
- Get agreement in writing. Once you have established the terms upon which you and the client will be doing business, formalize it in writing. It does not have to be a lengthy contract, a simple document laying out the details is better than just a verbal handshake. It yay help you if you need to go to…..
- File small claims lawsuit. If a client does not pay, take legal action. File a suit in their home county even if you are located elsewhere. Most companies do not want the public record of a judgment on their history to discourage future clients or vendors.
- Don’t throw good money after bad. Once you have determined that a customer is not acting as they agreed, don’t keep doing more searches just to get paid on old ones. If a client says “if you shut us off you will not get paid on the old ones” that indicates very bad faith intentions. Would you take them on as a new client at that point?
David Pelligrinelli is founder and President of AFX. The companies are involved in title research, legal investigations, and marketing research. AFX is a licensed investigative agency in multiple states.