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Wednesday, October 3, 2012

The check is in the mail

How many times have you heard this or even used it?  The dreaded quote comes up with nearly every aspect of your business activity; a customer fails to pay, a vendor’s reimbursement is not received, a loan is not re-paid, investor’s funds have not arrived.  Chasing the funds can become so time consuming that the business suffers from lack of attention.  The problem of failure to receive payments can be a real problem on both sides of the debt.

Strategies will likely depend on the amount owed, how badly the money is need, and tolerance for tolerance for pain.  Sometimes it is just not possible to get the money and truthfully, there is not a lot one can do. 

·        Hounding the debtor sometimes can pry the funds out but take care not to exceed those protections offered to consumers by the government.   

·        You can turn it over to debt collectors and receive a fraction of what is ever collected.

·        File a 1099c with the IRS forgiving the debt and creating an taxable event for the debtor.  Of course, you get nothing and they pay tax to the IRS.

·        Take them to court. It may take time and money for expenses and it is possible you will never collect anything or only a fraction on the dollar.   They may even go into bankruptcy if the problem is significant.

·        Offer to take a reduced payout and be done with it if they agree.

·        Ignore the debt and move on.

It often depends on the individuals and any bargaining advantage that may help convince them to pay up.  They have to care about making you whole or you will start on even more difficult battle.  Secondly, they have to have the funds.  Missing either of these two key ingredients means, your aggravation level is going to increase and your ROI on the collection will go down!

Now turn the problem around.  You have a startup or early stage company and by the very definition you have limited funds.  Aggressively pursuing the business objectives is required and sometimes your lines of credit get overextended.  One glitch could put your company in the position of not being able to pay your vendors, employees, or suppliers.   You also have payroll and the employees may have accrued leave (a legal obligation to pay).  The company has financial obligations that may even pass to the Board of Directors if left unpaid.  Some obligations may not even be scrubbed clean via a formal bankruptcy. 

The check is in the mail” comment should make you think about both sides of the problem.  Your company may end up there simply as a course of doing business.  It could end up there by someone else’s failure to pay you.  The key is to identify problems early enough to not hit the wall at 100 MPH when everything blows up.  Your company not having funds or not receiving funds may cause your company to become a going concern.  Try to see problems before they come up and determine how to address them.  Liabilities are not fun to manage regardless which side of the debt you are on!