Robert S. Bernstein, Esq.
Co-Managing Partner, Bernstein-Burkely, P.C.
It’s what acclaimed author Dr. Steven Covey, in his book 7 Habits of Highly Effective People, told us to do: begin with the end in mind. He described this habit as one of imagination. Similarly, when we first think of extending credit to a customer, way back before the first order is signed or before the first application is taken, we have to begin with the end in mind.
What does our credit function seek to accomplish? What is the contribution of the credit team to the smooth (and profitable) functioning of the business? Many believe that the credit team is as much the backbone of a business as is the manufacturing team or the sales team. Unless the business has decided not to lend money, credit must be an early thought in the imagination of the founders. They must think about how lending to customers can be initiated, calculated, negotiated, documented, facilitated, managed, collected and, yes, litigated. Beginning with the end in mind in the credit function means making sure that you can collect the credit, even when the customer fails to pay on time, even when the customer seems unable to pay.
Several years ago, I compiled some of my experiences in more than 35 years in the credit, collections and bankruptcy worlds into a pleasant little book called Get P.A.I.D. – A Guide to Getting Paid Faster (and what to do if you don’t). I realized that the collection function depends heavily on the Preparation (the “P” in P.A.I.D.) if it expects to be successful. In order to make sure that the customer pays, timely or otherwise, the business must have prepared itself, and its customer, for that important step in the relationship.
Beginning to lend with potential litigation or bankruptcy in mind is not fatalistic or negative; it is realistic and prescient. If your business doesn’t lend money, it needs to spend very little time on credit applications and the proper information needed to analyze credit risk. It can save money on credit agreements and thinking about credit terms to be included. It needs no mechanism to send invoices or statements of account, or to follow up with other payment reminders. Clearly, it would need no relationships with collection agencies or creditors’ rights lawyers. It still may need bankruptcy professionals (since businesses may fail or reorganize in the middle of the purchase relationship and your company may have rights to enforce the sale contact), but the instances will be few and far between. If your business is like a fast food restaurant, it will have little need for wide array of services that Bernstein-Burkley, P.C. provides. But everyone else, every other business on earth, needs to consider the right policies, documents, procedures, contract terms and collection steps. Businesses know that they need help sometimes in the development and management of these functions.
- Over the years, we have helped clients in the infancy of their businesses to think through pricing and profit issues in order to determine what credit terms they would provide. Helping them to decide what risk to take, and what to charge, based on expected credit losses.
- We have worked with clients to develop the range of contract terms to help the client protect itself not only from breaches and defaults during the production and delivery phases, but especially after delivery, when payment is due.
- Clients have come to us for help creating policies governing the collection process, to know when matters need to escalate and to whom, when a stronger touch is needed.
- As volumes increase, clients have looked to use for recommendations on receivables management consultants and collection agencies. We have been able to help them find the very best in the industry.
- When accounts get past the point where internal collections or agency intervention is helpful, we have developed legal strategies for clients to ratchet up the pressure appropriately, considering both the company’s tolerance for litigation and for loss.
- Sometimes we have become an arm of the clients’ collections team, managing their outsourced collections and litigation, utilizing the large network of lawyers and agencies around the US and beyond.
- When a bankruptcy intervenes and affects either delivery or collection, we have been able to help the client navigate the bankruptcy seas and evaluate the further benefits and risks of participating.
- Our firm has also helped clients reach out to regulators and legislators for help to change the way certain businesses or industries deal with the credit and bankruptcy laws.
So begin with the end in mind. If you know that your company wants to take some risk to increase sales and profit, think about how firms like Bernstein-Burkley, P.C. can help you to make the right choices, design the right policies, draft the right documents and exercise the proper rights in order to get to that end.