Keeping Afloat in a Slow Economy
It is no secret that our economy is suffering badly. Even the basics simply cost too much, and everyone has to cut back. As a result, your business is suffering.
So, how will your business survive when so many are closing their doors? Some simple, practical changes can make the difference in affluence or bankruptcy.
Here are a few simple tips that I recommend to all of my clients to protect their receivables:
1) Require a Credit Application
Whether your clients are other businesses or individuals, if your client has an open account with you in which you are supplying a good or service prior to getting paid, you must first require a completed credit application. The credit application should include:
- Full legal name
- Address
- Social Security or Tax Identification Number
- Banking Information
- Current credit reference with a solid company that has extended credit terms for several years, similar to what you are extending. If they only extend 5k at a time, do not then assume that your 25k lumber invoice will be sufficiently safeguarded.
If your client fails to pay their account, your costs in collecting will be much lower if you have adequate information.
2) Require a Personal Guarantee
If you enter into contracts with other companies, you should always require a personal guarantee from the person acting as principle of the company. If your client fails to pay on the account, or otherwise breaches your contract, the principle is personally responsible to you as well as their company.
3) Never let someone get behind.
The Prompt Payment Act allows you to stop work until you are paid as long as you provide proper notice. Speak with your attorney before stopping work, but don’t let their payments fall behind without making an effort to rectify the situation.
4) Receivable Turn-Around
Re-structure your company’s billing cycle to issue invoices immediately or, at the very least, monthly. Also, shorten the due-date. Your company’s accounting will operate much more smoothly without a 45 – 60 day lag in receivables. You will also be able to more accurately estimate your income for operating.
This also helps companies that can use Mechanic’s liens to recover money owed by being able to notify and file within the deadlines of the statutes.
5) What if contract calls for 60/90 day turnaround?
If you’re entering into a contract which has a two- or three-month turnaround, tell the general contractor that it doesn’t change when you may file a lien. Mechanics liens are on tight schedules, and a turnaround cannot delay the dates to get this done. Be up front with your contractors and be willing to file a lien even if you aren’t supposed to be paid yet. It is easy to release a lien when payment is made, it is much harder to file a lien after the necessary deadlines have passed. If you have any questions, please reach out to us.
