When Friends Are Deadbeats

One CEO's strategy for collecting money from friends.

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What's the thorniest collection problem a growing company must learn to handle? Overdue accounts receivable owed by friends, says John Lee IV, chief executive of Lee Technologies, a Fairfax, Va., computer-support-systems distributor. "We're normally very aggressive in tackling receivables older than 60 days," he says. "But with friends -- or longtime business associates -- I can't just turn the problem over to our lawyers, because of the personal issues involved."

So when friends place orders, Lee warns them about his collection policies. "I let them know that even if I give them more leeway, business is business, and I will expect them to pay in a timely fashion." A conventional rule of thumb would be 45 days for standard accounts and 60 days for friends, but Lee sometimes stretches those terms as far as 60 and 90 days. If a friend's invoices are that much overdue, Lee pursues payment himself. "Ten times out of 10, your friend will explain to you honestly what the problem is. Then I try to work out the best short-term payment plan for both of us."

The system works well: "One of my friends was $150,000 in arrears to our company. I called him, discussed his cash-flow constraints, and worked out a deal for him to pay us $15,000 a week until the account was paid off. Our lawyer -- or a collection clerk -- might not have been as successful in negotiating a solution that preserved the account and the friendship."