February 05, 2015  | Articles

A Tale of Two Receivables

By Patty Grasty
Client Support Specialist, New Growth Advisors

Even in the best of times it’s important for business owners to take the advice of experts if they want their successful company to go from good to great… so, it’s even more critical for companies facing the worst of times, such as liquidation, bankruptcy or worse, to rely on skilled practitioners who know how to triage a troubled situation and get them through what could otherwise be a losing battle.
In most receivership situations, the bank never gets paid. But recently New Growth Advisors (NGA) was brought in to help a failing family owned supply business, and did something revolutionary… they got the bank paid off in just three weeks! The judge in the case said he’d never seen anything like that happen before.
“Effective collection of accounts receivable can significantly add to the assets of a receivership, and increase the likelihood banks and other lien holders will be paid at least a portion of what they are due,” explains NGA Principal, Sumner (Sonny) Saeks. “But it’s not for the faint of heart! Often we find things in total disarray, from missing invoices and unorganized filing systems to haphazard billing and collections procedures. And when business owners try to handle matters themselves, it only makes things worse,” he adds. “It’s about convincing them to let go of the wheel and allow us to steer. Once they put their faith in our ability to design and execute a strategy for them, the outcome is always a lot more favorable for everyone involved!”
Case in point: The following is a comparison of two similar situations with two very different outcomes. Business A went it alone. Business B brought in New Growth Advisors…
Business A (…it was the age of foolishness) A small sign company had files in complete disarray. Information was missing or incomplete and often inaccurate. Billing had not always been done correctly, accounts had languished for weeks or months and the business continued to sell to customers who were not paying them.
The owner/manager had no particular plan, but in his panicked state he called the customers himself to try and collect on their debt. Unfortunately, because he had personal relationships with many of them, it was difficult for him to be as firm as he needed to be, allowing them to make excuses, tell sob stories and ask for unrealistic extensions. As a result his collection efforts were not effective or as lucrative as they should have been. Consequently, the bank did not get paid in this situation.
Business B (It was the age of wisdom…) A family-owned supply company retained New Growth Advisors. While the owners also had many stories as to why this customer hadn’t paid, or why that customer still owed money, they ultimately agreed to turn over the responsibility for communicating with these accounts to NGA.
The NGA team developed a solid action plan which began with a general letter to each customer explaining the appointment of a receiver, showing the balance due, the invoice numbers involved and the dates. They supplied them all with copies of invoices, especially where signatures of receipt were involved. These letters generated a great number of payments simply because, in the transition to the receivership, billing had not gone out and many customers were unaware of the debt or had been awaiting an invoice.
The letters were followed up with phone calls, stressing that the accounts receivable were an asset of the business, and as such, the status of the accounts had to be reported to the court. This generated even more payments and added to the amount that the company was able to distribute to the bank and other lien holders.
The final act was to follow up with a letter which included relevant portions of the court order, giving the customers one last chance to pay the debt or be turned over to a third party collection agency. In the end only three accounts had to be referred to collection.
NGA’s extensive and proven experience in working with distressed companies, combined with the application of their multiple approach strategy turned what could have been “the winter of despair” to the “spring of hope” for that company and many others.