I started collecting receivables when I was ten years old…

And I’m still at it:

Morning home delivery of the Boston Globe, the Herald, the Record-American, and the Post (yes, Boston once had four morning newspapers), cost 33 cents a week, Monday-Saturday. (The “big kids” delivered the Sunday editions.) Every Friday evening, I’d go around my suburban neighborhood to collect.

If I got there too early, before Dad got home with the weekly paycheck, Mom would usually send one of the little kids to the door to ask if I could call back the next morning, when I delivered. Realizing that half the battle was getting a commitment, I always followed up by ringing the doorbell between 8 and 9on Saturday morning, before anyone could get away: “You told me to call back in the morning…”

Occasionally people would stretch me out. I knew all the multiples: 33, 66, 99, $1.32, $1.65.Since I made only $1.75 a week, plus tips, when I started, extending credit could get expensive.

So I learned to call back at different hours-7 a.m. was good, after I finished the route. The kids would answer the door before Mom or Dad could intercede, and I’d start negotiating: “Just pay me one of the four weeks, Mrs. McAfee, so I don’t have to suspend delivery on you-you don’t have to do the whole $1.32 at once.” A variation: “If you can just pay me 66 cents each of the next four weeks, you’ll be all caught up.” Mrs. McAfee in her bathrobe and curlers wasn’t in a strong negotiating position.

As a paper boy for nine years, I learned a lot of useful stuff, and among the very first lessons was this: you don’t really make any money until you get paid.

Yes, I ultimately had one of the biggest daily routes, at 75papers, a gross of $25.00 a week. But I had to turn in $21.25 (85%) to the paper store every week, so I couldn’t afford to carry folks very long, even if it cost me their subscription. Funny thing was, I discovered that they really couldn’t live without their Globe or their Herald very long. They’d call Big Charlie, my boss at the paper store, to resume delivery, and he’d always tell them that Brad would start them up again after they paid the account up to date. After that, I’d remember to keep those folks on a short leash.

All these years later, it’s the same deal. I have one client that provides recurring services to hospitals and nursing homes. Every week the bills go out, and at least once a month they have to be collected. But health care is in tough shape-almost every one of them has a story. They haven’t received their reimbursements yet. Their utilization rate is down. The Legislature just instituted a new tax. These arguments are in addition to the ones we listed from the payables side in last month’s Howe’s Bayou (“I didn’t receive the invoice.” “You didn’t send what we ordered.”).

“You know what?” I say. “I’m sympathetic. I really am. We’ll correct the problems that are our fault, but [speaking on behalf of my client] I can’t let you make your problems my problems. I’m not your bank.

“What day of the month do the State reimbursement checks come in? I’ll call back to remind you that we’ll have to suspend service unless we get at least a month and a half of payments within three days thereafter.”

All these decades later, the process still works. The basic elements- the 4 F’s of credit and collection -haven’t changed:

1. Firm – No hedging. No ifs, ands, or buts. You need a commitment from that customer, or you simply have to give them an “or else” and make it stick.

2. Fair – You’re not in business to bust anyone’s chops, or to embarrass Mrs. McAfee in front of her kids. You can’t cut them off without warning. And if you’ve let them get out 90 days without any follow-up, you can’t give them an “all or nothing” ultimatum on the first call. But they have to be fair in return-the first lie is the last opportunity.That’s why C.O.D. was invented.

3. Friendly – People respond much better to honey than to vinegar, especially the long-suffering accounts payable clerk. It doesn’t take much humanity over the phone to get her [usually “her”] on your side, and it’s surprising what you can then learn about your customer’s business, or what happens to Friday’s paycheck when you try to collect on Saturday morning.

4. Five days a week – This doesn’t mean harassing each delinquent customer every day. It’s simply that you need to be available to make follow-up calls-or wake-up calls- every single day: “Mary, this is Brad Howe of ABC Corp. When we spoke on Friday, you said the check was going out that day.Well, it’s now Wednesday, and it’s not here. What happened?”

Firm, fair, friendly, and five days a week-and underlying everything,persistence. Start calling early, three days before the due date, and stick with it. Let your customers know your expectations, don’t apologize for them, and don’t relent.

After all, it’s your money.

Alligator Bites

Common shortcomings in the credit and collection process:

1. Lack of commitment to a credit application process

2. Not establishing and adhering to credit limits

3. Failure to bill timely

4. Failure to follow up early and often

5. Using mailed statements as a substitute for phone calls

5. Not charging interest on overdue payments

6. Allowing customers to take discounts that they don’t earn

7. Waiting too long (>100 days) for legal pursuit

Draining the Swamp

So your customer’s check didn’t show up in today’s mail as they had promised. What if “What happened?” is that they decided to ignore your terms and pay on their terms-Net 60? That’s when you have to consider recouping your cost of working capital by improving your margin.

If the interest rate on your debt is 9%/yr., that’s ¾% per month. For the difference between a 30 and a 60 day payment, you need another .75%-75 “basis points.”

You have to consider increasing your price -instead of the next order at $100, the price is now $100.75. The customer gets told that you’re simply covering rising costs. If she protests, tell her to consider it a Christmas tip because you’re such a good supplier. It worked for me all those years ago…