Balance due

The recession is slowing more than sales. It's slowing companies' ability to pay for what they've already bought.

As the economy contracted in the last quarter of last year, 1.1 percent of commercial receivables were more than 91 days past due, up from 1 percent in the year-ago period, according to the Credit Research Foundation, a Columbia, Md., nonprofit.

Cortera, a Florida-based commercial credit company, also tracked a slowdown in payments. Between January and December, the average number of days that bills were past due jumped 39 percent to 11.74 days, up from 8.42.

"We've seen a dramatic increase in the amount of activities required by collectors to bring cash in the door," said Alex Cote, a spokesman for Cortera, formerly known as eCredit.com.

The challenge lies in knowing when to lean on valued customers and when to give them time to mend their finances, local executives said.

Efforts to extract payment now could weaken a distressed customer further, making future collections even less likely, said Steven Kusic, chief executive officer of NRA Group, a consumer collections company in Swatara Township, Dauphin County.

In addition, your competitors might extend credit even after you pull the plug, Kusic said.

"It's a balance. It's a very careful balance," he said. "Credit is one of those things that help you sell product, but you have to be able to manage ... your losses."

As the economic slowdown drags on, executives said, companies are scrutinizing their collections more carefully.

They can pull credit reports from providers such as Dun & Bradstreet, of course. They also are watching to see if a customer who normally paid in 30 days is now paying in 45. Some are tightening their billing practices.

"Utilities require some commercial companies that are having problems to prepay their bill on a weekly basis in advance just because things are that bad," Kusic said.

Other changes are less dramatic.

One company that had been billing on a 30-day cycle for ongoing services is now sending out invoices every two weeks, said Kurt Shertzer, president of Collection Center Industries Inc., a commercial collections company in East Petersburg.

Too many customers had been taking 45 days to pay, Shertzer said. The hope is that customers will pay the smaller, two-week bills more quickly.

"If you're sitting there with a pile of bills that you've got to pay, it's easier to pay the small ones," Shertzer said.

Shertzer said he's also seen more companies calling his firm for help. New customers include mom-and-pop operations that haven't traditionally made collections a part of their business.

The cost of outside assistance often leads companies to delay asking, Shertzer said. His company charges a contingency fee of about 25 percent of what it collects for a customer.

Collection Center has gotten calls about bills that are more than six months past due, Shertzer said. He recommends calling earlier, since struggling companies are more likely to pay the squeaky wheel first.

"If the person that is supposed to pay you is in trouble, and they're going downhill and you don't get it early, you could be the one that loses instead of the one that gets paid," Shertzer said.

Regular communication is one key to assessing whether and why customers are in trouble, said Chuck Kern, chairman and chief executive officer of Kern and Company, an accounting firm in Camp Hill.

In general, companies need to establish clear payment terms, let customers know what they are and enforce them consistently, Kern said. "If you set terms and conditions and then continually allow them to be ignored, I think it makes it tougher to try and collect."

There's also value in backing off, especially when other creditors are barking.

Kern once worked for a manufacturer that had a customer whose inventory was wiped out by a warehouse fire. Other suppliers rushed in to demand payment.

Kern said his boss advised a gentler approach: continue selling to the customer on a cash-only basis and give it a year to pay off bills incurred before the fire.

The move earned the customer's loyalty after its finances turned around, Kern said.

"Sometimes, if you know the customer or you know the client and you know they're credible, you know they're ethical, you know they're good businesspeople, maybe you want to roll the dice and take some risks that you normally wouldn't take," Kern said. "But that takes very keen judgment."