Canadian Rental Service

Legalese: October 2014

By Deryk Coward   

Features Business Intelligence

This article will address the issue of your accounts receivable. Every business has them. Believe it or not, even law firms have accounts receivable!

This article will address the issue of your accounts receivable. Every business has them. Believe it or not, even law firms have accounts receivable!

There are two fundamental aspects involved in limiting your accounts receivable; try not to let them occur, and when they do occur, deal with them quickly and aggressively

Don’t let them occur
Every industry has different standards when it comes to retainers, or requiring its customers to pay up front before services are rendered. Customers have varying expectations and different tolerance levels for paying up front. When you go to a movie, you pay for your ticket first and then go in to watch the flick. When you purchase an airline ticket, you pay for it in full, often many months in advance. Lawyers typically ask for a retainer up front, to be held and later applied to a future statement of account. The vast majority of clients in all of the above scenarios accept the proposition that they will pay in advance.

From my experience in the rental industry, not many of you are demanding payment up front from your clients. From what I can tell, there are two main reasons you’re not doing this. First, you have never done it, so it’s new. Second, you fear that your clients will go to a competitor who does not require payment up front.

The first excuse for not obtaining payment in advance is not very valid — just because you’ve never done it before doesn’t mean you can’t start now. An ancient Chinese proverb, loosely translated, says that the best time to have planted an oak tree was 100 years ago. The second best time is today.

The second reason for not obtaining payment in advance is more understandable, but still somewhat unreasonable. It really comes down to how desperate you are to rent the equipment and how many other clients would be prepared to pay you in advance for the same piece of equipment. You should ask yourself if you really need clients who refuse to pay you in advance. Those clients tend to be the same people who will complain about the equipment, return it late and generally take up your valuable time.

Of course, you are not likely going to change the way you do business with your long-standing clients whom you trust and who regularly pay their bills (even if they usually take 60 or 90 days). That’s just good business.

Quick, aggressive action
The dirty little secret of the collection world is that there is a direct relationship between timing of action and success in collecting. The longer you sit on those bad debt files without attempting anything new, the worse your chances become of ever collecting. You should have a system in place whereby Invoices and/or reminder statements automatically go out to your customers. Once they have not been paid over a set amount of time (to be fixed by you), those customers should receive something different in terms of communication: a phone call, a personalized letter or an email or text, for example. The above process should not take long; give it a month or so before making the determination that you need to take positive, aggressive action toward collecting. I have seen situations where businesses literally wait years to address their bad accounts. By that time, it is often too late to help them.

If your initial requests for payment are ignored, aggressive new action might include hiring a collection agency, hiring a lawyer, and/or taking your customer to small claims court yourself. Small claims court, as opposed to regular court, allows for claims to be heard relatively quickly and efficiently. In Manitoba the monetary limit is $10,000, but it varies greatly from province to province. Best of all, many people represent themselves in small claims court and having a lawyer is absolutely not necessary. Most of the time, your customers will resolve the matter with you before court. Rare is the individual who actually wants to waste a day with you in court.

The point is that you should make these decisions quickly. Think of your accounts receivable as bananas sitting in your fruit basket. They go from delicious to overripe to banana bread to the garbage very quickly. 

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