Owning-Up Time

"Your check is in the mail"

With sales slow, interest rates high and money tight, businessmen are looking for any creative way to make their bottom lines look better. One sharp-pencil technique is euphemistically called "prudent cash management." But to its victims this is the old game of "Your check is in the mail." Says John Gordana, president of Equitable Adjustment Service, Inc., in New Jersey: "Normally responsible executives with good credit records are conjuring up ingenious techniques to stall or avoid bill payments."

Manufacturers took an average of 45 days to pay their bills during the first quarter of 1980, a sharp increase from 40.5 days in 1976. Among the worst offenders: department-store chains and auto manufacturers. One Los Angeles giftware importer and distributor explains frankly: "We've intentionally slowed our bill payments by about 15 days because our collections are not as good as normal and the cost of money is high."

By taking as long as 120 days to pay bills usually due in 30 days, companies can stretch available cash and reduce bank credit requirements. Even big companies are getting into the act. Before it received its federally guaranteed loan in June, Chrysler Corp. developed expert skills at stringing along its suppliers. It wangled extended terms and price cuts, and even talked some suppliers into accepting Chrysler cars in lieu of cash.

Corporate treasurers have become artful in explaining away their delinquencies. Blaming the post office is now as old-fashioned as the rolltop desk. More up-to-date bromides include: "My firm's headquarters is in Paris, and the checks come from there"; "We're missing your invoice"; or "Our computer broke down."

To keep cash flowing in on schedule, many companies are hiring commercial collection agencies. Business is thriving for the so-called corporate knee breakers who skim 20% to 25% from each collected debt. During the first three months of the year, they corralled 22% more outstanding debts than during the same period in 1979. This year collections are expected to exceed $1.3 billion.

Other firms prefer to handle deadbeats on their own. During the 1973-75 recession, the Trane Co., an air conditioner manufacturer in La Crosse, Wis., had to carry $750 million in due bills. Now, Trane starts leaning on customers after 30 days. If the bill is not paid within 90 days, Trane goes to court and obtains a mechanic's lien on the building where the equipment is installed. Recalcitrant contractors usually pay up fast.

One of the toughest creditors is now the Federal Government. If people are slow in paying their tax bills, the Internal Revenue Service increasingly seizes everything from houses to cars and boats. The goods are then sold at auction. So far, the number of IRS seizures has increased by 44% this year, and some local tax offices have started contests to see who can pick up the most goods in a month.

As the trend to slow settlements grows, the old 2% discount for quick cash payment has fallen into disuse and abuse. Says Debt Collector Gordana: "Cash discounts now cause nothing but trouble."Some brazen slow payers even deduct the bonus from their bills, though they have waited several months to put the check in the mail. Berol, U.S.A., a writing instruments manufacturer in Danbury, Conn., discovered that too many customers were pocketing the unearned discount. It thus cut the cash allowance in half and now sends dunning letters to those that do not pay up on time.

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