The Year of the Dun

In periods of prosperity, the relationship between creditor and debtor in the U.S. is generally as polite and stylized as a minuet. Now the minuet has become a danse macabre. Many consumers, trying to husband their dollars in a time of diminishing incomes, rising unemployment and ridiculous prices, are letting their unpaid bills pile up. Businessmen, strapped for cash themselves, are prodding tardy customers faster and harder than ever, while artfully dodging their own debts. Unable to collect their bills, many companies are paring down their operations, and some are simply dropping out of business.

The rapid proliferation of deadbeats has brought a record volume of business to bill collectors. The American Collectors Association reports that the average number of delinquent accounts received by each of its 2,600 member agencies jumped from 750 a month last January to 868 in December. Many cash-short retailers, gasoline companies, utilities and even hospitals no longer wait the usual 90 days before turning their bills over to collectors--even though agencies keep as much as half the money they bring in.

The Hat Trick. The fact that many people are genuinely broke and unable to pay has retarded profits at many of the dunning agencies. National Account Systems, a Chicago-based collection firm that is owned by Diners Club, was assigned $150 million in debts to collect last year, up $20 million from 1969. Though more agents were hired, the company actually collected only 25% of the debts, compared with 30% in 1969. Some debtors resort to "the hat trick"; they toss all their bills into a hat and at month's end pull out a few at random and pay them.

Hurt by laggard payments, merchants are taking a sterner stand on debts. Two weeks ago. Brooks Brothers advised customers that its nationwide chain of shops would no longer extend credit entirely free of charge. Starting in March, most of the Brooks shops will charge 1 1/2% monthly interest on accounts that are unpaid for 30 days or more. Bergdorf Goodman will also begin putting charges on tardy accounts. Businesses of all kinds are now at taching brightly colored stickers to their bills to grab debtors' attention.

The credit-card companies--champions of a cashless society--are pressing for real money. The most troubled card firms are those, like Master Charge and Uni-card, that are either operated or owned by banks. A few years ago, these merchants of debt sent salvos of unsolicited cards to potential customers drawn from lists supplied by bank savings and mortgage departments. Now, faced with rising delinquencies, Uni-card, which is owned by the Chase Manhattan Bank, is screening applications more rigorously, and has enlarged its collection staff.

Even the more selective firms are taking precautions. Notes Carte Blanche President James Hawthorne: "In 1969 we might have accepted an eight-week-old report on an applicant's employment record. Today we demand that it be up to the week. These days, just a few weeks could make all the difference in a man's being employed or not." At Carte Blanche, a computer keeps a daily tally of all transactions and flags the company when a normally prudent card holder begins to "buy out of pattern." A husband, for example, who goes on a spree purchasing presents for his wife's birthday is quickly called by company monitors and reminded of the billing dates.

Blame the Computer. Corporate deadbeats are a heavy drag on business. The Credit Research Foundation, which traces debt trends for corporations, reports that manufacturers now have to wait an average of 45 days to collect bills, instead of the standard 30 days. Companies owe one another a phenomenal $99 billion for goods received, v. $81 billion at the end of 1968. Some of the very biggest companies are the slowest to pay; in effect, they are forcing their smaller and more vulnerable suppliers to finance them. As a result, an unprecedented 15.6% of the 1,697 manufacturers' failures during the June 30, 1969-July 1, 1970 period were attributable in part to an inability to collect debts, according to the latest Dun & Bradstreet analysis. Corporate officers have developed considerable skill in sidestepping bills. A favorite evasion is to blame computer trouble for late payments. Another popular method of gaining time is to find some minor fault with the suppliers' goods, claiming that the delivery was late or the quality was shoddy.

Partly because of slow payments, the garment industry struggled through one of its worst years in 1970. Retailers were slow to pay manufacturers, who in turn cut their staffs and put off their suppliers and subcontractors. Starved for cash, many of these small firms collapsed. At present, garment producers' payments are running an average of two months late. Advertisers are also taking their time paying their ad agencies, and a few do not pay at all. Though an estimated 40% of all advertisers are now delinquent, agencies are not pushing hard to improve collections for fear of losing the accounts.

Of course, if a company is considered important to the public good, as the Penn Central Railroad obviously is, the Government may step in and guarantee its solvency. But in the season of the big dun, even a railroad cannot ignore a diligent collector. Recently the Long Island Railroad, an organization not noted for its punctuality, was late in paying an injury claim. A sheriff thereupon attached all the furniture and equipment in the line's office in Manhattan.

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