Small Business Debt Collection: Big Customers are Not Always the Best Customers

Posted by Marilyn Miller on March 16, 2018  /   Posted in Uncategorized

Small business debt collection is especially burdensome. Business owners and their limited staff wear many hats. They do not have much time to focus on recovering bad debt.  Small business debt collection can also be controversial, and not everyone is up to the task. Small business owners are more likely to trust customers, who are often their neighbors. Trust is a great thing in business, but it does not mean that business owners should fail to protect themselves with a good customer contract.

Small business owners are particularly vulnerable when it comes to larger, national companies. They feel that a big business has the means to pay, and would not risk their reputation by not paying their bills. Sadly, nothing could be further from the truth.

The most visible example of a big business stiffing small companies belongs to the Trump Organization. Small business owner Juan Carlos Enriquez of the Paint Spot in Doral, Florida sued the Trump Organization over not receiving the final payment of his contract. He knew that taking on a Trump company would require a “big gun” law firm and apparently had the means to hire one. He was awarded the outstanding payment amount plus almost $300,000 in legal fees.

But receiving a court judgment does not guarantee a payment, and payment was delayed. The owner was able to put a lien on the property, the famous Trump National Doral Miami Golf Resort. Still no payment. More waiting and more legal fees, and a judge ordered an auction of the property. Wow! Having a key asset, a jewel in his crown at risk would certainly force payment, right? Wrong! Trump’s attorneys simply put money in escrow, which avoided a foreclosure sale, and are now considering an appeal.  As of this writing, the debt remains unpaid.

Now, I do not mean to pick on Mr. Trump (who may have a valid reason for not paying the debt and has, I am sure, paid many people and is obviously very successful). There are small business owners and entrepreneurs all over with stories of being stiffed by large companies or wealthy individuals. I know an  experienced millwright who has a very successful business doing incredible custom work. He is so good that his entire business is based on customer referrals. Nearly all of his customers are wealthy, and many are celebrities, household names. And some of them owe him large sums of money.

As another example, I was hired a few years ago by a small independent contractor to collect a bad debt of less than $ 1,500 from a national megabank. We got the bill paid, but not without jumping through hoop after hoop. The bank never disputed the bill, and in fact admitted the work was done. They just took time paying it, and made it very difficult. It almost seemed as if there was a concerted effort to see if we would put in the effort to get paid, or just let it go.

Right here in Maine, I have been asked to collect several debts for small subcontractors who were hired by national companies. These national “service” companies win contracts with countrywide businesses and hire local contractors to do the work. Local contractors do not obtain contracts with the firms, which are essentially paper companies with few assets or no employees. The national service company has sold the account by quoting a very cheap price – a price they do not disclose to the local contractors. So, unless the local contractor confirms their price in a contract beforehand, they run the risk of either not getting paid or getting paid less than they invoice. I am currently working to recover two such debts: one for a landscaper and another for a local commercial cleaning company.

So big is not always better. A contract is always a good idea. Even a simple email confirming price and payment terms will suffice. Good credit practices – including your customer contract – must be your norm, whether your client is big or small.

A contract will make small business debt collection much more successful, and save you time, energy and aggravation.

 

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