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Non-payment Of Bills

July 23, 2006

Q-I started up a magazine about a year ago. It is a four-color, glossy publication that we direct mail to homes and businesses. It has been tremendously popular with the public in the three counties we cover.

While advertising sales are doing well, we have a very large number of customers who are delinquent. They sign contracts and then after one issue they just decide not to pay anymore. If we go ahead and print their ad we can send them to collections.

The question is: Why do we have such a high number of delinquents? What do you suggest we do? Sometimes it is as high as 45 percent that are late or not paying at all.

You definitely have a collection problem but I suspect there is a much deeper problem.

Most businesses expect a small percentage of bad debts -- less than 5 percent is acceptable-- but 45 percent is way over the line for just about any type of industry. This is especially troublesome since your customers have signed contracts, pledging to pay.

First, you need to find the root cause of the problem. My guess is that these customers’ expectations are not being met. Find out if this is true by calling a group of your customers who have not paid -- maybe 10 percent or so. You’re not calling to harass them but to find out why they did not enjoy the experience that they had with your magazine and to try luring them back. This will help you uncover the real problem, which means you can then take the appropriate corrective action.

I would guess that many of your customers thought they would receive immediate benefits from advertising in your magazine. When this did not happen, they did not feel warranted in paying for their ad. You can easily correct this problem by clearly explaining to your customers early on that advertising is a long-term effort. People have to see an ad at least five times before they are willing take action.

Once you understand the root cause of the problem and fix it, then you need to move onto the finance side of this problem. If the customer has not paid for the ad according to the contract provisions, I would not run the ad again. Just to be on the safe side, you should check with your lawyer before enacting this policy since written contracts are involved.

You may want to consider asking your new customers to pay a small portion of the ad cost upfront so that they have some skin in the game. With established customers, however, you really do not need to do this.

The last thing I would do would be to establish a collection policy and stick with it. An example of a collection policy would be if a customer does not pay within 15 days, you call them to find out why they have not paid. If another 15 days pass without receipt of the money owed to you, send them a friendly but firm letter. When an account is 45 days late send a letter that firmly states the actions you will take if payment is not received. After sixty days, turn the account over to a collection agency or lawyer.

You have a serious but fixable problem. Like most things in life, however, you need to know what the real underlying problem is before you can implement the right solution.

Thanks for writing to me.