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Collections for Appraisers Don’t Work for Free!
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? Fear. 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 not for a lender, always, always get a 50% deposit upfront with the remainder of the payment due before you deliver the appraisal or discuss the value.
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, relatively easy to use program.
Prior to using Quickbooks many 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 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 AMCS when the market went bad in 2008.
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.
Require payment by check at the end of your deposition. In my area (Northern CA) this is standard practice. Check your area.
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 Appraisal Management Companies
AMCs are one of the main sources of collection problems for residential appraisal firms when business slows way down.
If the AMC is 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.