Eleni Gianopulos spent more than 15 years selling her handmade sugar cookies to a famous gourmet grocery chain. Then Dean & DeLuca stopped paying its bills. By January 2018, Gianopulos, founder and owner of New York City-based bakery Eleni's Cookies, realized she might never be paid for $86,000 worth of 2017 custom holiday orders. "No one in the accounting department was answering phone calls," she recalls. "They were not returning emails, there was no correspondence."
Gianopulos would learn that Dean & DeLuca was in financial trouble, and the company made headlines this year by closing stores and reportedly stiffing other vendors. But she had already sued the chain, and ultimately settled for half the debt in 2018. (Dean & DeLuca declined to comment.) An unpaid $86,000 purchase order might sound extreme, but the average U.S. small business has $53,399 in outstanding receivables, according to a 2019 report by Intuit. That's a big reason 61 percent of owners worldwide struggle with cash flow, and nearly a third--in a rather vicious cycle--are unable to make payments on loans or compensate vendors, themselves, or their employees, the report found.
If this sounds all too familiar, consider these tactics to ease your cash-flow headaches--and collect overdue payments.
1. Delay payables; accelerate receivables.
When it became clear Dean & DeLuca wasn't going to pay up, Gianopulos contacted her suppliers to explain the situation. Each was willing to extend terms until the matter was resolved, she says, which prevented larger cash-flow issues at the bakery.
Conversely, ask your other clients to consider paying early, suggests Curt Mastio, owner of Founder's CPA, a Chicago-based accounting firm for startups and small businesses. If they're reluctant, offer a small discount for paying up front, he adds. "We've had success collecting hundreds of thousands of dollars by calling five or six large clients and saying, 'Our business is scaling. If possible, could you pay the amount due early? The additional cash would be very helpful to fuel growth right now,' " says Carisa Miklusak, founder and CEO of Cincinnati-based Tilr, a hiring app that often pays its contractors in advance of invoicing clients. "You don't have to say somebody didn't pay."
2. Go to a third party.
If you lack a line of credit or business credit card, there are online lenders you can tap for fast cash--though interest rates and fees run high. Likewise, there are outfits that buy outstanding invoices, but you'll be selling the debt at a discount. If you turn to third-party financing, pay particular attention to what happens if you default--and whether you're subject to personal liability, Mastio says.
"If it's a very complicated deal, walk away," says Oren Zaslansky, founder and CEO of Flock Freight in Solana Beach, California, who's tapped various sources during his 20-year tenure in the freight-shipping industry. Be wary of mezzanine financing, which entitles lenders to equity in your business if you fall behind, he says.
Depending on where you live and the amount owed, small-claims court can be a good option, says Domenic Romano, managing partner at Romano Law, in New York City. But if the amount is significant, be prepared to play hardball and hire lawyers, as Gianopulos did.
To increase your odds across legal options, send truant clients an overdue invoice every 30 days. These updates are called accounts stated. Follow up by phone and email, and keep any formal acknowledgments the client sends. That could help you avoid court and get paid. "The squeaky wheel gets the grease," Romano says. Gianopulos can attest to that. "It was painful to understand that after all our hard work, we were not going to get paid in full," she says, but "at some point, you have to realize 50 cents on the dollar is better than nothing."