Collecting from deadbeat clients.

• Author: Sweeten, Liz
• Position: Finance - Brief Article

In today's business environment, business owners and bill collectors can't threaten deadbeat clients with concrete galoshes if they don't pay their past-due bills.

"I did have a guy die on me once," says Mark Tolman, president and CEO of InterConnect West, a local information system analysis and application development company. "He owed me quite a bit of money and I was in the process of taking him to court. My lawyer called and told me he died in his sleep. You can't get money from a dead man."

Collecting from the living can be just as hard, according to Amiee Matthews from Bonded Adjustment Bureau, a family-owned collections business in the Holladay area. "About 40 percent to 50 percent of the people we're trying to collect from never pay anything," she says.

Both Tolman and Matthews agree, if the deadbeat client is more than 60 days past due, they rarely pay. Matthews is more successful than most agencies in collecting funds. "We allow people to make payments," she says. "We figure some money is better than no money."

Tolman estimates that he has $197,000 in past-due accounts receivable. "I'll probably collect $15,000 of that total. Some of those people just disappeared off the face of the earth. A lot of them take out bankruptcy."

The bankruptcy rate is extremely high in Utah, according to Matthews. "Bankruptcies vary depending on individual circumstances," she says. "But usually you don't see a dime from those people. They may end up paying down the road because they want to use their credit. Most banks and lending institutions will not give loans to someone with an open collection account."

Business owners and other service providers should take precautions to protect themselves from deadbeats. Tolman has noticed a significant drop in his number of deadbeat clients since he started demanding money up front. "I get a third of the contract up front, a third midway through the project and the last third when the project is finished," he says. "That way, the client has a significant amount invested and they really don't want to opt out."

Matthews is also a proponent of contracts. "Make sure you cover yourself. Get a contract. Have them sign the contract. Lay it out and make sure they're aware of what is entailed in your service to them. Have clauses in the contract 'if we have to turn this to collections, we will charge a collection fee. If we have to use an attorney, you'll have to pay those costs.' Make it real apparent that you will...