RSSM Digital NPAworldwide Edition December 2019 | Page 20

FEATURED ARTICLE
5 WARNING SIGNS
Wilson Cole, President of Adams, Evens, &
Ross (AER) is joined by AER General Counsel
Samantha Cole to talk about knowing when to
take action on possible past due collections.
Phases a company goes through when facing
a financial storm is similar to the phases of a
real-life storm like a hurricane. One of the key
topics of this webinar is how to forecast and
prepare for storms. It is essential to prepare
for a storm ahead of time because by the time
a storm hits, if you’re note prepared, it may be
too late.
S
amantha says the best way to prepare is to have all docu-
mentation for your accounts in one place and accessible. You
do not want to be the company that raises an unpaid invoice
to a collections agency but doesn’t have any documentation
showing the invoice was sent to/received by the debtor, any
documentation of the work actually being done, or doesn’t
even have the original contract. Having the documents acces-
sible may be more difficult than it seems given how companies
sometimes change their filing systems or vendors for record
keeping. It helps to do a periodic audit to make sure everything
is in the current system and organized so that there aren’t piles
of invoices that aren’t paid because they were in an old system
or not labeled correctly, etc.
To continue the storm analogy, a “tropical storm” is when a
client/debtor is running about 7-10 days past due. You still have
about a 97% chance of getting paid and hopefully this situation
is just temporary. To be proactive, it doesn’t hurt to get out the
paperwork for the client’s credit application and re-run the
check to see how the client is paying other vendors. If the client
is running behind on payments to multiple other vendors, espe-
cially if they are running behind more than 30-60 days, it would
be a good idea to act fast. Though as Samantha points out, to
“act fast” does not mean to start discounting your invoice/fee.
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A “CATEGORY 1
STORM”
is when a client/debtor is beyond 30 days past due. The chanc-
es of getting paid the full amount of your invoice drops to 84%.
Staffing and recruiting firms are typically the first on the chop-
ping block of who gets paid and who does not in this situation
because they are typically considered secondary suppliers; the
debt being second (or third) tier debt. A general gauge of how
high your debt tier is would be to look at the type of employ-
ees you provide to the type of company it is. For example, if
you provide software developers to a software company, those
would be fairly essential, so the debt would be rated higher.
But if you provide administrative staff or other non-essen-
tial staff, the debt would be rated lower. Samantha notes that
another red flag that bad things are on the horizon is if you’ve
already placed a candidate with the client company and they
have not paid the candidate.
THE “CATEGORY 2
STORM”
is when the unpaid debt has lapsed around 45-60 days. Other
creditors have begun placing holds on the credit line to the
debtor company and the chances of receiving full payment on
unpaid debt drops to around 75%. If you hear rumors from
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