Cashflow

Confessions of a serial creditor

Paul Wallbank /

 

One of the sad facts of business is that ventures go broke, and when they do there’s a trail of former customers, suppliers and employees that end up out of pocket.

The recent appointment of administrators to the recently listed Australian electronics retailer Dick Smith Holdings leaving thousands of gift card holders out of pocket is a good example of this.

Over twelve years of running a tech service business I found having customers go bust was a regular thing. Luckily this wasn’t frequent, as once the assets had been liquidated and divided among creditors one was lucky to get five cents for every dollar owed.

 

Early warning signs

 

When a customer did go broke it was rarely unexpected. With long-standing clients the payment times would blow out and often a business going bust showed the signs of poor maintenance, declining stock levels and distracted management long before the money ran out.

The other notable thing was the failing company’s staff were often on your side. At one company, a whisky broker that went under owing millions to creditors who’d effectively bought ‘timeshare’ in liquor, the receptionist insisted in paying for some of the work we’d done out of the petty cash.

Five years later the remaining outstanding invoices were settled and, as expected, we received almost nothing apart from the entertainment of reading the administrator’s reports detailing the struggles of angry creditors trying to get their drinking money back in the face of what had almost certainly been a scam.

 

Ethical proprietors

 

Most business owners that go broke aren’t crooks however, most are honest people who made bad decisions or were just plain unlucky. Often these people suffer far more than the creditors.

One pleasant experience we had with a failed customer was a dance studio on Sydney’s Lower North Shore. The business went broke, the proprietor fled to her native New Zealand and I resigned myself to never seeing the outstanding thousand dollars.

Two years later the formal liquidation proceedings had finished and unsurprisingly we received none of the monies owing. A few months after a cheque from the business owner arrived for the entire outstanding amount with a note apologising.

 

A tough life

 

While the former dance studio owner probably broke the rules in paying back the debts outside the official channels, she illustrated most failed business people are good people who were caught out by their own mistakes or being on the wrong side of lady luck.

Business failure for those running startups or smaller enterprises often comes at a high personal financial, mental and relationship cost so it’s not surprising those sinking try to hold on later than they should and then take personal responsibility for the damages they cause.

Sadly the same doesn’t hold true at the corporate level and in the case of Dick Smith Holdings the executives, the institutional shareholders frittering away investors’ money, the private equity swashbucklers and the staid corporate managers responsible for the firm’s failure probably won’t see a hiccup to their stellar careers.

 

It’s usually not personal

 

Another trap new business owners fall into is making the recovery of debts a personal matter. It’s very rare a defaulting customer is actually about individuals, particularly when it comes to larger businesses. While it’s painful to take a loss on a sale, it’s not worth spending time focusing on getting the money back when you could be servicing your paying customers.

Sadly, there are some individuals who do stiff suppliers because that’s the way they do business or they get some sort of excitement out of messing people around. The best thing you can do if you encounter one of these folk is to write the debt off and move on as quickly as possible before they eat up all your time and consume your sanity.

The moral for anyone in business remains never to be too exposed to any one creditor. Regardless of how well a client’s management means, when things go bad it’s unlikely you’ll see most of the money you’re owed.

Paul Wallbank is the publisher of Networked Globe, his personal blog Decoding The New Economy charts how our society is changing in the connected century.

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Paul Wallbank

Paul Wallbank writes on how IT affects communities, markets and workplaces. He also helps businesses to grow and engage their customers with technology.

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