Example… Vendor A has a large client, Corporation Z. Corp. Z owes say, $5 million in accounts payable to Vendor A. As the end of the year approaches, Corp. Z is pushing to delay payment until at least January. Vendor A is afraid that if they 1) stop supplying services or 2) make a legal fuss, Corp. Z will stop buying their services.
Therefore, Corp. Z has Vendor A over the barrel. Vendor A’s finance department wants the cash, but political pressure from above won’t allow it. Therefore, Corp. Z keeps the money (they have it), keeping it in investments, etc. that bring in some sort of return that is (at least morally, if not legally) ill-gotten gains. They are getting interest on money that shouldn’t be in their account in the first place.
Now, if you or I do this, we are reported to a credit agency. After all, I can’t buy a car, drive it for six months, and tell my finance company that “I’m not sure I like it and I don’t think I’m going to pay for it. Perhaps if you lower the price, I’ll reconsider.”
Does Vendor A have anywhere to turn, other than the legal system? Is there a Corporate Collection Agency that this debt could be turned over to, collecting the debt for the Vendor and tattooing the delinquent Corp. Z with a bad credit ding?
And if so, what does the collection agency get paid for their services?
Also, what does a personal collection agency get for chasing down a debtor?
Corporations, like people, do have credit records. I don’t know if a contractual debt (as opposed to loans or bonds) would end up on one, though.
Generally the reason collection agencies are employed is because it’s cheaper to offload your bad debt wholesale to the agency rather than begin legal action against every individual debtor. But if we’re talking about millions of dollars, the opposite may be true.
To quote an old saying, “if you borrow $100, the bank owns you. If you borrow $1,000,000 you own the bank.”
In my real life experience, I was a part of Vendor A, and one of the Big 3 Detroit automakers was Corporation Z.
Corporation Z had made it clear upfront that they practiced 180-day pay (we’ll pay you 180 days after we get your bill) AND only if the invoice passed at least four layers of scrutiny, or else it would come back to us and they go back to the bottom of the pile.
And if we didn’t like it, they would be happy to terminate our contract and we would be free to seek business from any of the other Big 3 automakers.
This is my experience too. If 6 months is ok, what about 9 months? And if you are viewed as pathetic as a vendor, how do you get any respect and credibility? The threat of contract termination is always there. Vendors roll over like dogs. And the big corporations know it. The behavior is truly amazing.
But, aside from a vendor going belly-up, since the big corporation has no real motivation to fork over the cash, how did you as a vendor finally get the money? I’m sure that if the bill didn’t pass the 4 layers of scrutiny, and went back to the bottom of the pile, the payment was made outside the 6 month window, right?
I have worked for many big companies and my wife’s family owns a company. Companies generally do their own collections unless it gets way out of hand and oddly, it can be a lot more personal than when it is an individual consumer account. The front lines will be the accounts receivable department that will just start calling the accounting people at the company that owes the money. Their people won’t like that so they will try to see what’s up internally. If it gets delayed a lot, managers will start calling managers and it just goes up the chain until the CEO is calliing the CEO.
Remember that most of the people at Corp Z including the high level managers are just wage earners themselves and don’t like to catch grief because of this sort of thing. People always talk about the “interest” during this type of transaction. If a $5,000,000 transaction is delayed for a month, that means that company earns about $12,500 in interest at 3%. It is actually much less after taxes. That may seem like a lot to an individual but it should be pretty trivial to a large company and hardly worth damaging their reputation for.
Vendors are not powerless. They can and do adjust their prices and terms unfavorably to bad customers. In some cases, they will refuse to sell at all if it just isn’t worth it to them. Both of these situations aren’t really rare in business.
Remember that slow payment can be taken as a really bad thing on the street. It could indicate cash flow problems or other internal business problems and it isn’t something that should be done on purpose.
My comments above only reflect companies that promise to pay in a certain time and then miss that agreement. Big companies often demand all kinds of concessions up front and I believe that is different.
Yes you can get corporate credit reports, but not a corporate collection agency.
Many large companies are notoriously late payers. One American car company that i had to deal with wouldn’t even consider paying before 120 days. i was lucky to get it a couple of months after that. But they did pay eventually. I am not sure that they would have any interest in pissing off thousands of small suppliers who would all go to small claims court. That would be a nuisance to them.
They’ll feed you just enough to know that you’ll still hungry.
By the way, if you really want to be a nuisance, send the debt to a consumer collection agency with the name of the purchasing person as the debtor. WOOHOO! That was a treat. I could almost see the dude’s face turning red through the phone. But the guy paid.
I worked for an auto parts maker, and for a short while they ran perilously short of cash. Once or twice, a vendor’s truck drove up, and the driver said he had been instructed not to back up to the dock until he was paid in cash for the shipment. After some frantic phone calls and a trip to the bank, he was paid in cash. We had assembly lines waiting for the vendor’s parts.
I used to work for a nursing home chain that had problems paying its bills. My computer password was changed each month and I had to call the software company to make sure they paid for the month.
Not sure if this is exactly what the OP is looking for, but accounts receivable is one of the many administrative functions that companies outsource these days. Initially this would start with outsourcing the administrative aspects of A/R (sending bills, logging payments) but as the companies partner more closely, I can see the outsourced company acting more like a collection agency by charging more for greater effectiveness.
Dun and Bradstreet is the best known business credit reporting agency. Hereis a sample report. Here (pdf) is a more detailed one. It’s not nearly as helpful as a consumer credit report.
RDK charges:
What is your fee?
Generally speaking, our contingent fees are 25% for Commercial and 33 1/3% for Consumer debt provided that the obligation is under a year old. For debts older than 12 months, the contingent fees go up to 33 1/3% and 50% respectively. Should attorney intervention become necessary, contingent rates are also 33 1/3% for commercial and 50% for consumer debt.
Some collection agencies actually buy the receivables instead of taking a percentage of collections. They usually pay a tiny percentage (1-5%) of face value because the expected payoff is small.
To further complicate some things, some medical practices actually outsource billing to a collections agency.
One hospital in my area appears to sell their ENTIRE portfolio to a collection agency in Florida the day the bill is completed.
My bills “from the hospital” had the same PO box on them as the ones “from the collection agency” for the same account.
My understanding is that billing arrangements like this can have prices in the 90% range… meaning the billing agency can pay as much as 90 cents on the dollar for the debt, bearing in mind that it’s not bad debt and much of it is actually owed by insurance companies.