With a red-hot economy and plenty of business rolling in, who has time to worry about collecting accounts receivable?
Smart party rental operators, that's who. "This is the time to put the systems in place-when times are good," advises Dick Detmer, head of Geneseo, Ill.-based Detmer Consulting, which specializes in the rental industry. "If you put these systems in place now, you will be ready when the time comes for them to bail you out."
No matter how strong a company's sales are, erratic cash flow can put the brakes on expansion plans. For a business with lean margins, lagging receivables can turn all sales into money losers.
The sooner you can get your hands on the cash you are owed, the sooner you will have funds to devote to other profit-making activities or to defray the cost of your own debt.
How do you get the money you've earned? Party rental pros share these collection tips:
STAY IN CONTROL Rentals Unlimited, a high-end party rental firm in Stoughton, Mass., keeps receivables on a tight rein.
Virtually all retail customers pay up front. "We take all the credit cards under the sun in order to make payment as painless as possible," says president Larry Green.
For wholesale customers, the firm cut its number of days sales outstanding from 45 to 22 by being "proactive," Green says. "The best defense is a good offense. The week that the bill is due, we have someone from accounting checking on it. By the same token, our salespeople are always in contact with our clients. We're not sitting around waiting to hear about problems.
"Most rental dealers pay attention to sales, but it's easy to sell," he adds. "It's another thing to deliver, make sure everything is done right and collect the bills."
JUST CALL Rekha Sood, general manager of Van Nuys, Calif.-based L.A. Party Rents, says she believes in the power of the phone.
"The bookkeeper and I take half a day once a week to call" all outstanding accounts, she says. "We didn't do this 10 years ago. But since we started, our collection rate has improved by as much as 50 percent."
Those phone calls unearth the myriad reasons a bill might sit unpaid. "Many times, people just don't realize they owe you money," Sood says. "Also, if a client's accounting department requires a purchase order with every invoice and you don't include it, your bill will simply be thrown away."
Further, the calls also turn up problems with an order. "A client may be waiting for a $65 credit on a $3,000 bill," she says. "But he won't call to let you know that."
GIVE CREDIT CAREFULLY Detmer suggests discussing credit terms up front. "Don't take people's word for it that their credit is good," he cautions. "Have the customer fill out a credit application. You can check their credit rating very quickly."
He warns against the high cost of carrying a balance. "You have to be careful that you don't let your customers use you as their banker," he says. "After all, what business are you in?"
Detmer is particularly strict with single-shot social clients. "If a customer calls you on the phone and asks you to pencil in a date, just say no," he recommends. "Let that customer know you need a deposit of 100 percent of the job for you to hold the date."
Jim McManus, executive director of sales for Teterboro, N.J.-based Party Rental Ltd., manages accounts receivable by extending credit only after the customer earns it.
Although new clients might assume they are entitled to credit terms, "the only people who deserve a net 30-day policy, which creates accounts receivable, are those who generate repeat business for you," McManus says.
"Although there are exceptions, a new client should do at least three events on a COD basis at a minimum level of business before you even extend credit," he says. "Clients establish credit by doing business regularly and paying their bills."
BILL THE USER With good clients, Party Rental Ltd. avoids creating extra receivables by using third-party billing, in which the rental company bills the end-user directly rather than passing the rental bill through the caterer.
New York state requires that sales tax be added to a bill as it passes from rental company to caterer to end-user. "The caterer can't use a tax-exempt certificate in New York state," McManus explains. By billing the client directly, "we save the tax for them and cut down on our own accounts receivable."
If clients do fall behind in payments, McManus stresses the positive. "If they can be honest with you and they are paying you, you may want to put them on a COD basis with their current events while they are paying down their balance," he says. "But take a positive approach to helping people with their problems. A good client is really a partner with you."
Resources: Detmer Consulting, 309/441-5215; L.A. Party Rents, 877/LA PARTY (527-2789), 818/989-4300, www.lapartyrents.com; Law Offices of Leslie E. Chayo, 310/277-6337; Party Rental Ltd., 888/774-4776 (New York), 201/727-4727 (New Jersey); Rentals Unlimited, 888/2-RENT US (273-6887), 781/341-1604
Les Chayo, an attorney with offices in Los Angeles and general counsel for the Rental Industry Association, offers 10 tips to speed up collections:
1. Establish your collection policy and share it with your clients. It's important to tell clients up front when you expect to be paid.
2. Offer a discount for early payment.
3. Invoice promptly and often.
4. Don't wait for a bill to become overdue before you call the client to check on the status of the account.
5. If your call to a client reveals that the bill is unpaid because the client is unhappy with the job, resolve the problem.
6. Use an aging sheet so you are aware where each client stands.
7. Call overdue accounts regularly.
8. Don't be afraid to be in the client's face. Your client is likely paying some of his or her bills-be the squeaking wheel that gets the cash.
9. Train all staff to recognize the need to collect on receivables.
10. For the true deadbeat, consider filing a 1099 form with the IRS for "Relief of Indebtedness." Then the deadbeat at least will have to pay taxes on the money he owes you!