How much are delinquent debts affecting your bottom line? More than you might think.
Although we often think of delinquent debt in terms of immediate needs such as payroll, utilities and basic operations, the impact of uncollected accounts can have an even greater impact on your bottom line. How? Through lost investment opportunities.
To explain, let’s touch on a recent headline. The Salt Lake Tribune ran a story noting that several high-profile businesses didn’t pay their property taxes on time. It wasn’t an actual attempt to evade taxation. Rather, those businesses were simply garnering a sweet little return made possible by a favorable spread in interest rates. Turns out, interest earned from holding onto cash is greater than the penalty levied for late payment.
Nate Brown, CFO for Xango, told The Salt Lake Tribune the nominal interest rate charged to delinquent taxpayers provided an unintended incentive to companies. Obviously, Xango is doing what any savvy business would do under the same circumstances. It’s a case of good old American ingenuity.
So what does that have to do with the delinquent debt that you and I deal with each day? There’s a reason why businesses like Xango are holding onto their money as long as they can. They see potential profits in investing that money that outweigh the consequences. So let’s flip that argument on its head. If your customers are holding onto their cash, think about the investment opportunities you are losing.
Instead of enjoying the opportunity to make a little profit from the interest-rate differential, many Utah businesses are seeing profits diminished by slow pays and no pays.
If you’re frustrated by the thought of bad debts ripping your profit margins to shreds, you may want to take action. The majority of slow pays eventually will pay. The first step is to sort through the list of late pays and garner as many clues as you can as to why the bill has not been paid.
If the company has always paid in a timely manner, and suddenly misses two or three payments, put a red flag on that account. If it’s a long-term pattern, but the account has always paid, consider the possibility that your client wants the added perk of using your money for a little longer. You probably won’t get too far in changing that type of pattern, because it’s often a personality issue.
Compile a list, and then spend a day searching the web. See if you can identify clues as to why an account is past due. Sometimes, you will see an obvious reason. For example, the owner may have sold the business, suffered the loss of a family member, or even went out of business.
Many business owners do not like to call delinquent accounts. If you have a personal issue with that, then have someone else do it. Phone calls are the most powerful tool in collecting delinquent payments. Strict rules govern collection calls to consumers, so be aware of those statutes.
If you would rather focus on your business, and not play part-time collector, then consider contracting with a loss-recovery specialist. Often, it’s worth the fee to be able to move on, and do what you love, which is operating a profitable business.