As the United States passes over a year since a near national lockdown has lapsed, and as states and businesses start to reopen, many small, medium and large businesses are faced with a situation that has not happened in recent years: “How do we collect on our outstanding receivables while also not marring our crucial relationships with key clients.”

Understanding three crucial steps to ensure you and your company’s success will help any business, large or small, navigate these situations.

Brandon Buteaux, Director at The Baker Group

man shaking hands with money angry

The Three Crucial Steps

These steps work best when applied in chronological order, however, it is not an absolute necessity to need to apply the steps in order for them to be effective. In addition, it is not always feasible in the real world to tackle each step in exact order because of a myriad of variables that can arise in any specific situation.

Step 1: Understand the other party’s ‘ability’ to pay

The Baker Group of Companies Commercial Debt Collections use technology such as TLOxp Skip Tracing Tool

Quite possibly the most important aspect to collecting on your outstanding receivables is understanding the other party’s ability to pay. Are they ‘cash-strapped’, nearly insolvent, or do they have the ability to pay but you are not a ‘priority’ to them at this juncture? Without understanding the other party’s ability to pay, it will be difficult to know which angle to approach the situation because each of these instances requires a slightly different approach in order to be most effective. Obviously if they have the funds and just don’t want to pay you because you are not currently a priority then a more direct approach is warranted, however, if they are cash-strapped or even getting close to insolvency, there are a few other things that can be done in order to get some type of direction for that specific situation.

If they are close to being insolvent it is best if you know if they have access to other funds or if they are seriously close to the brink of bankruptcy, you may want to know if they have other assets like their valid receivables (this could very well be a ‘flow down’ situation in which they can not pay because they have not been paid on the same project/contract etc.) or property (real estate, vehicles, equipment, etc.). If they do have property and are willing to exchange the property for settlement of the debt then that may be a viable option for you.

Step 2: Understand the other party’s ‘willingness’ to pay

The second step to navigating, and getting paid on, an outstanding invoice or account is to understand the other party’s willingness to pay. Do they want to pay and acknowledge the debt or are they completely unwilling to pay. In addition, are they responsive and communicative during the process?

If the other party truly wants to pay the debt but does not have the funds there are some creative ways to try and make that happen if they have other assets or future contracts that they may be working on. However, if they have no intention to pay the debt at all then an entirely different approach is necessary to secure and collect on your outstanding debt.

If they do not intend to pay the balance willingly, and they have the ability to satisfy the debt, assuming the debt is valid, then it is time to start to find out how to prioritize your invoice in their payables. If it was a one-time contract and this is not an ongoing client then you may have to try to stop funds from the top (if this is a flow down contract and the party owing you is before you in the contract funds disbursements) with proper notices and intent to lien property or mineral rights (if the project is construction or oil and gas related). In addition with some creative research you can find out who they bank with and who they have credit lines with (have they paid you by check before, or wired you money – this will be one of their sources). There are many things that can be done in different situations and in different industries in order to secure a debt from an unwilling party that do not include lengthy and costly litigation.

Step 3: Make a decision on if you want to do business with this party again. Ask these questions.

Knowing the current situation you are, or were, in with this party, do you want to continue to do business with them? If they are a large portion of your revenue and/or you have good margins with them then you may be willing to spend the time and resources to deal with these types of situations with them should they arise in the future. However, if you do not have any intention of ever doing business with this party again then it makes the approach that you take to collect your outstanding debt a much easier decision.

No matter if you do or do not plan on doing business with this party in the future, make a decision as quickly as you can in order to better understand the approach you most likely need to take moving forward. Also, understand that your decision on doing business with them moving forward could very well change during this process as this is not a static situation and there are moving parts. You could have thought they had the ability to pay and that they were lying to you, and you find out that they were telling the truth and as soon as they received money they were owed paid the debt to you, or, vice versa could very well be true. In any instance make a decision quickly, always be professional and be open to new data that you may not have known earlier in the process so that you may be agile and more apt to see the results you desire.

The longer you wait, the harder it is to collect!

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