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Collections - the squeaky wheel gets the grease!
Want more collection ideas and tips? To order our
newsletter, or Financial Management Reprint Series, go to the Our
Products page. This article was previously published in Appraisal
Today and was written by Ann O'Rourke. It is copyrighted.
For reprint permission, Contact Us. The article below was
published in 1996.
My favorite book is The Check
is NOT in the Mail, by Leonard Sklar (Baroque Publishing, San Mateo, CA,). Well
written, with many practical tips for small businesses. Sklar was a nationally known
seminar instructor on collections before writing the book. Click
here to order from Amazon.com
Go to Our favorite
business books for appraisers for more collection books.
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Go to the Business Tips Page.
I sometimes have a desperate appraiser call me
asking, "How can I collect $5,000 (or much more) from a client?" My first
question is: "How long has the bill been outstanding?" The appraiser generally
answers "Over 6 months."
In my response I try to be optimistic, but have to tell the appraiser
that the older the bill, the less likely they will collect on it. For businesses, on
average, 80% of accounts are collected within four months. After that, the longer the
time, the less likely you will be paid.
Why do residential appraisers still keep accepting assignments after
the unpaid billings keep mounting? Greed. They are afraid they would lose the client if
they refused to take any more assignments until the old billings were paid, or if they put
the client on COD payment. Yes, they probably will lose a deadbeat client, who will go on
to get another sucker appraiser.
Because commercial appraisal billings are for much larger amounts than
residential, appraisers can build up large accounts receivable balances quickly with only
a few appraisals. Client screening, prepays, and CODs can help.
If you can't collect, you've done a free appraisal.
You cause your collection problems
Often, you're the reason why you have collection problems. You don't:
1. Have a clearly communicated credit policy. You allow everyone to be billed, no matter
who they are.
2. Monitor your accounts receivable. You don't keep up on your client's
business, assuming they are still making money and paying their bills.
3. Follow up on past due billings, letting them slide until they are
months past due.
How much financial risk do you want?
If you have a very loose credit policy and are lax on collections, you
take a much greater risk of working for free.
If you are very strict on credit or collections, you will lose some
assignments.
How strict or loose you are is a business decision, depending on how
much risk you want to take.
Communication starts before taking the assignment
When talking with a prospect, be sure to clearly communicate your
credit policy and payment terms.
If it's a large institutional client find out their payment terms and
decide whether they are acceptable to you. If the person you are speaking with doesn't
know, call their accounts payable department.
Sometimes private clients are reluctant to pay in advance, especially
if they get your name out of the phone book. Offer COD payments, where they come to your
office and pick up the appraisal. Or, you could send it out UPS COD.
If you do the assignment COD (payment on completion) try not to
communicate your results until you are paid. In our office, I don't discuss the value
until I am paid.
Monitoring accounts receivable
I strongly recommend using a computer program to track your accounts
receivable.
I use Quickbooks for Windows, an inexpensive ($100 street price),
relatively easy to use program.
Prior to using Quickbooks six years ago, I was lax on managing my
accounts receivable.
Now I just run an accounts receivable aging report and know within
seconds who has paid, who hasn't, and how long billings have been outstanding.
Client payment histories tell me who is slipping behind on payments.
For institutional clients, I know their typical payment patterns, and can follow up
quickly when a billing may have been lost.
What are your credit terms?
Do you have your credit terms on your invoices? If not, your terms are
"pay me when you get around to it".
Do you have a late charge on your billings? This can make collections
much easier as most of us will first pay bills with late payment charges.
Are you afraid a client will get angry with terms and late charges. Not
if they want to stay in business, as both are very commonly used.
Who is your collection manager?
Every appraisal firm has a collection manager, even if it's only the
principal!
I recommend having a non-appraiser staff person handle past due
billings, if possible. Then the client can't get into a discussion of "problems"
with the appraisal or other appraisal issues.
If you have to do your own collections, make sure you are unemotional
and business like. Don't rant and rave over the phone.
Many of us hate to make "bill collector" phone calls. If no
one in your firm can make late payment calls, use letters. Set up a series of late payment
letters to be sent out on schedule.
You can use a letter service, which is fairly inexpensive. But the
letters must be sent out early to be effective, usually within 1 to 5 months past due.
They send a series of letters, usually one to five, asking for payment with 1 to 2 weeks
between letters. You receive the payments directly.
The squeaky wheel gets the grease
Even your best clients can get into financial difficulty. Government
agencies almost always pay, but remember the Orange County (California) government
scandal?
Companies merge and your bill can get lost.
If you've ever gotten behind on bill paying, who did you pay first?
Probably the vendor who kept calling and/or sending letters. You've made your loyal
vendors wait.
The first late payment contact
The first contact should be non-aggressive. By letter or phone, remind
them that their bill is past due, perhaps saying: "This is just a courtesy reminder
to let you know your bill is past due. Please disregard if you have paid it."
If possible, contact the client's accounts payable department. Their
job is to get bills paid (or resolved) and off their desks. Find out if they have your
invoice and an authorization to pay. They are accustomed to receiving calls from vendors.
Second, third, and fourth contact
As the bill becomes more and more past due, the tone of the phone call
or letter becomes stronger and stronger. If you have lots of problems with late payments,
I suggest getting a book on collection techniques, such as the book by Leonard Sklar
referenced at the end of this article.
Don't try to "reinvent the wheel." Collection professionals
have written books and articles on effective methods.
Collecting from companies with financial problems
Companies with financial problems do pay some of their bills. You want
to be sure they pay your bill first, before their other creditors. If you wait too long,
they'll be out of business and you'll probably never collect.
Many appraisers lost thousands of dollars owed from mortgage brokers
when the market went bad in 1993.
Appraisers that collect the money owed them do not wait to start making
phone calls.
In our appraisal business, if I suspect a client is having financial
problems, I call every day until they sent us the money. I want to get paid first. Let
other vendors wait.
Collecting from attorneys
Attorneys are notorious for payment problems, for many vendors, not
just appraisers.
If you can, get a full pre-payment or collect when the appraisal is
delivered.
If you bill by the hour, be sure to send monthly billings and
statements. Keep a close watch on payments.
If you are unable to collect, send a letter to the State Bar or court
(or threaten to send one). Appraisers I know who have done this have always collected.
Even if your state bar may not have any jurisdiction over deadbeat debtors, it shakes up
the attorney.
Another angle for the "get tough" appraiser is "No
money. No testimony."
Collecting from mortgage brokers
Mortgage brokers are one of the main sources of collection problems for
residential appraisal firms.
Some appraisers have a firm "COD" policy, and collect from
the borrower at the time of inspection.
If mortgage brokers are licensed in your state, you can try filing a
complaint with the state licensing agency (or threatening to file one).
Where to get more information
My favorite book is The Check Is
Not in the Mail by Leonard Sklar (Baroque Publishing, San Mateo, CA,). Well
written, with many practical tips for small businesses. Sklar was a nationally known
seminar instructor on collections before writing the book.
The book is in print. To order, go to www.amazon.com/.
Note: this is a direct link to the book.
To order directly from the author, send a check to 783 Mediterranean
Lane, Redwood City, CA 94065 call with a Visa or MasterCard to (650)654-9138. The cost is
$19.95 + $3.00 shipping + sales tax of $1.70, for a total of $24.65.
Want more collection ideas and tips? To order our
newsletter, or Financial Management Reprint Series, go to the Our
Products page.
Previously published in Appraisal Today.
Written by Ann O'Rourke.
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