A sale is a gift until it’s paid for

The Canadian Printing Industries Association (CPIA) recently spoke with Dan Tocchet of Canada Legal Referral, one of CPIA’s membership partners, regarding credit protection strategies. Here he shares his valuable insights.CPIA

The printing industry is very competitive and sales are important to the growth of any business. However, always remember that a sale is a gift until it’s paid for. When taking on new accounts, first request a Credit Report ($10) to see if the potential customer is credit worthy. Next, get the customer to fill out a credit application. You should also confirm that the information on the credit application is truthful and accurate. These reports can prevent potential bad debt.
Here’s a true story that I came across in my fifteen years in Credit & Collections. A print finishing shop was approached by a potential customer in early 2012 about doing some bindery work. The first order was for $5,000 and the customer paid by credit card. Three more jobs were placed over the next few months, which were also paid by credit card. The customer was now requesting credit terms of net 30 days. The finishing shop agreed and set a limit of $25,000.
Shortly thereafter, the customer apparently landed orders from a Fortune 500 company. Several larger orders were placed over a six-week period totaling $75,000, even though the credit limit was $25,000. The customer had requested 75-day terms since they gave the Fortune 500 Company 60-day terms to win the job, and insisted that there would be no problems getting paid.

The first invoice that came due was for $15,890. Several phone calls and visits were made to the customer who continued to make promises to pay. Subsequent invoices became due over a two month period until $75,000 was outstanding. The customer was refusing to pay and even invited the finishing shop to proceed with legal action. The shop hired a lawyer to issue the claim and six months later had a default judgement but could not collect on that. Plus, it accumulated over $5,000 in legal bills from the lawyer.

The finishing shop reached out to me in hopes we could assist them in collecting. I immediately did a derogatory search on the customer only to find out that there had been 26 legal claims and 16 collection claims filed against them over the past three years. Also, a current bank report showed its line of credit was 100% utilized. I was not looking forward to showing the shop owner the credit report that contained this information – because obviously that would have prevented the $75,000 bad debt if it were accessed in the first place.

After fifteen years in this business, I still find it hard to tell business owners, especially small business owners, that sometimes it is too late do anything when an account goes delinquent on them. It’s even harder to tell them that if they had simply checked a Credit Report on a potential customer, that they could have prevented that bad debt.

As much as I try to become numb to these types of situations, it always affects me to the point that our company now offers a service called Account Monitoring, where we will monitor accounts and warn our clients of derogatory information filed against their customers. This is one of the many benefits CPIA is offering to the membership via Canada Legal Referral. The service will notify CPIA members via e-mail should any of their existing accounts have a negative occurrence that can consist of a legal claim and/or collection claim.

It’s also important that once an account becomes delinquent, you forward it to a third-party collection agency. Our collectors listen carefully and allow the customer to speak – and most of the time, this will lead the way to a solution. Here are the stages of collections.

1. Pre-Collection Stage
“Legal final demand letters” clearly define your intentions. When used early in the collection process, they normally result in compensation, identify a problem or facilitate a satisfactory reimbursement arrangement. We don’t charge a commission should payment be received at this stage.

2. Third-Party Collections
Communication in this critical stage will determine if the customer has the capacity to pay or if they have no intentions of paying. Multiple avenues to contact an individual with the authority to settle the debt is crucial. We don’t charge any up-front fees at this stage – you pay a small fee only if we collect.

3. Small Claims Court Proceedings
We will do an “asset determination” into the prospect of filing a claim. Small Claims Court is designed to give companies a simple and inexpensive way to settle disputes or issue garnishments against bank accounts.

Even if no payment is received after implementing all three stages, at least we will have the information reported to the different credit bureaus to add to their files. Canada Legal Referral is passionate about helping you. However, it’s up to creditors to utilize the services that are available to them. As I mentioned above, until a sale is paid for, it really is only a GIFT.