IT TAKES 45 days on average to collect on a party rental invoice, according to a recent informal poll by Special Events Magazine. But despite the ongoing sour economy, that figure has changed little in the last two years, largely because party rental companies have become more aggressive about collecting what they are owed.
Rule No. 1, operators agree, is don't be shy. Virtually all operators responding said that they check with clients earlier than they did a year or two ago. “We learned at a cash-flow management seminar that companies are now being told not to pay a bill until being called for it,” says an operator in the Southeast. The company also makes friends with the client's accounts payable clerk: “While the decision-makers dictate certain expenses, the AP person is truly in charge of which bill is paid first.”
A Midwest party rental company agrees, saying the company is “calling and faxing customers sooner and more frequently.” A spokesman adds, “I believe that half of all customers in extreme delinquent status haven't paid because of issues with their rental. One quarter of the remainder just don't have the money. I try to resolve these issues equitably for both parties involved. Discounts and payment agreements seem to work the best; offering to eat the finance charges if a payment is received within a certain time frame also helps. In any case, we seem to have to give something back in order to receive full payment in these cases.”
“If we don't receive payment in 15 days, we get on the phone for follow-up to determine why,” says a California operator who rarely sees receivables go beyond 30 days. A Texas operator is a little more in-your-face: “When accounts hit the 90-day column, it is sometimes necessary to pay the client a visit. Physically showing up at the door impels most clients to hand over a check.”
In extreme cases, “We have stopped dealing with clients because they owed [us] too much or they owed other companies too much,” says a Seattle operator. “Some companies are so desperate that when one rental company cuts them off, they will go to another company to carry them until it's too late. There is a caterer in town who owes one company $60,000, another company $7,000 and another company $2,000, and it is still operating on a COD basis.”
But to get paid in the end, get smart at the start. Managing receivables “can't be an ‘after the fact’ process,” notes an operator in the Rockies. “You need to maximize your chance of getting paid up front, either by using credit cards more frequently, demanding a check or knowing your customer's ability to pay.” His company has begun telling customers carrying old balances that if the customer does not use the rental company exclusively for a year — and pay for every rental up front, along with a portion of the old balance — then the rental company will seek legal action for the old balance.
Indeed, many rental companies say tough times require tough collection policies. One Chicago rental company has begun putting customers it has cut off into collection, and merely the threat of collection is often enough. “Although special events is a big business today, everyone in the industry knows everyone else, and no one wants to be the customer everyone is talking about because we cut off their credit and put them into collection,” the president says.
One Texas party rental firm turns the tables, offering incentives for prompt pays. Clients lose discounts by paying late, and the company's collections manager has a bonus incentive for volume of collections and percentage of clients contacted.
“Getting our sales staff to understand the problem is ‘the problem,’” says a California operator. “If clients don't understand our quality products and services along with our fair pricing, then they should definitely patronize our competition.” Another California operator agrees it's an internal issue: “I remind our team how much we enjoy our paycheck on payday and that none of us likes to work for free, so make sure the company gets paid for what we do for our clients.”
For a list of tips on collecting receivables courtesy of Les Chayo, attorney for the California Rental Association, visit our Web site, www.specialevents.com, and click on “Current Issue.”