Tight controls key to assuring payment COLLECTING WHAT'S DUE

January 14, 1991|By Michelle Singletary | Michelle Singletary,Evening Sun Staff

Sam Cooperman has run his family business for 15 years. Now, instead of spending more time on selling doors, windows and skylights, the Baltimore building supplier has to worry about bill collecting.

"When dealing with builders, you have to be very careful," Cooperman said. "They are the ones hurt as soon as there is a downturn."

To keep from becoming one of the thousands of unsecured creditors that are increasingly finding themselves in bankruptcy court, Cooperman attended a one-day crash course entitled "Don't Become Trapped by the Insolvency of Others (And What to Do If it Happens To You)."

"Because money is tight, business owners have to take tighter controls," said Steve Kaufman, a partner with WS&B Kaufman, a Bethesda-based accounting and management consulting firm. WS&B, which also has a Baltimore office, held the conference in Bethesda.

Experts at the conference discussed both ways to prevent going bankrupt as well as to avoid dealing with a potentially bankrupt company.

In 1981, there were 2,800 bankruptcies nationally in the construction industry. In 1989, there were more than 8,000, Kaufman told the 118 participants, most of whom were from the construction industry.

"And it will probably get worse as the year goes on," Kaufman said.

In 1989, 170 businesses with debts of $203 million failed in Maryland. During the first nine months of 1990 -- the latest period for which figures are available -- the number of business failures in Maryland increased 160 percent to 443 with debts of $278 million, according to the Dun & Bradstreet Corp., which tracks such data nationwide.

Nationally, 38,296 businesses carrying $34.1 billion in debts they could not pay went under in 1989. For the first nine months of 1990, 43,836 businesses failed, leaving creditors with $52.4 billion in unpaid bills.

Many of the problems are concentrated in the Northeast and along the Atlantic seaboard, where 30 percent of the failed companies are situated.

A bankrupt company, experts at the conference warned, can set off a downward spiral that sucks solvent businesses into the vortex because they do not get payments due them. Suppliers or subcontractors then have trouble paying their own bills and loan installments. To top it off, in the current economy, banks, nervous over failed real estate loans, are becoming far more cautious than federal regulators require them to be and are restricting their lending.

Cooperman, president of Berg Products Corp., a $13 million firm with 46 employees, said he spent about $10,000 last year trying to collect on debts. That amount, he said, didn't include the fee attorneys charge when the debt is actually collected.

In 1990, Cooperman said six of his customers filed for either a Chapter 11 reorganization or Chapter 7 liquidation. Last year, he had about $55,000 in debts he couldn't collect.

"For us that's a lot of money," Cooperman said.

In the building industry, where it is common to extend credit to clients, it's harder to weather an economic storm.

David G. Mueller, business manager and controller of Fick Bros. Roofing Co. in Baltimore, said the company has not suffered as much as others because it is adamant when it comes to collecting bills.

"You just have to know your customer. You have to get as much information on them before granting credit," Mueller said.

To keep losses down, Mueller said he takes aggressive action. After a bill is past due for 30 days, he starts calling the customer immediately.

"You have to manage your receivables," he said.

Leslie A. Mostow, a director at WS&B, urged attendees to become meticulous credit checkers.

Mostow said before issuing credit, firms should get credit

reports, references and company financial statements if they can. For suppliers, an audited financial statement can be a good indicator of whether a firm is able to pay its bills.

Always photocopy checks received since they contain important information, he said. And having a good billing system is also key to getting paid, Mostow said.

Contractors and subcontractors should never perform work that is not in the contract without first getting a change order, Mostow said.

Mueller said they often try to speed up their payments because the roof is usually the first to go up and yet builders often want to pay them at the same time as other subcontractors.

"We turned down a $125,000 contract just because we did not like the contract payment terms," Mueller said.

One avenue contractors might consider in trying to collect on a past due bill is a mechanic's lien.

A mechanic's lien is a claim against property for work done or materials furnished for or about the property. The mechanic's lien protects contractors, subcontractors, and companies that supply materials or labor. The lien is enforceable by foreclosure on the property. The action is not against an owner but the property.

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