Preparation and communication: keys to getting paid in difficult times.

NOTE: This article originally appeared in the May/June issue of NEFA Newsline. The entire issue can be seen here.

By Dan Feeney

An organic beef farmer in northern Vermont had seen enough. He had sold a ton ­­­– literally, a ton – of beef to a restaurateur who kept promising to pay. Thirty days went by, then 60, then 90. In a fit of rage, early on a Saturday morning, the exasperated beef farmer pulled into the restaurant owner’s private driveway, backed his pickup truck to a new, shiny boat in the yard, and was ready to drive away with that boat to settle the debt.

Luckily, cooler heads prevailed. The struggling and embarrassed business owner figured out how to pay the beef farmer in a way that didn’t involve giving up the family’s boat.

Equipment leasing companies undoubtedly sympathize with this farmer. Anybody who lends money has experienced annoyance and frustration as accounts become delinquent and the collection process begins. As the days of not being paid string out longer and longer, it can be tempting to take steps to repossess property, engage lawyers, or file liens. But what a panel of finance and collection experts explained in a recent National Equipment Financing Association (NEFA) seminar on collection essentially ladders back up the old adage that you tend to catch more flies with honey than you do with vinegar.

Insights on successfully getting paid in a challenging market formed the basis of the information-packed NEFA discussion held in early April. I moderated the event, but there was immense help from panelists Shawn Smith, founder and CEO of Dedicated Commercial Recovery; attorney Peter Tamposi who serves as CEO of Lease Security Systems; and Walter Graham, national account executive at Quicktrak.

Collections can be messy and awkward, but the tips shared by the panel and attendees of the discussion provide a good blueprint for addressing an uncomfortable situation. Nobody wants to end up being the incensed beef farmer.

 Talk the talk

When the effects of the COVID-19 pandemic struck in 2020, many equipment leasing companies girded for the worst, fearing that the number of customers who would be forced to have their accounts become delinquent would skyrocket. North Star Leasing, a division of Peoples Bank, took a proactive approach early in the pandemic. With about $70 million in its portfolio, North Star Leasing offered an extraordinary one-time deferred payment plan for its customers. In April 2020, that equated to about $3 million in deferment. As of today, all but a mere handful of the accounts that took advantage of our deferment plan have been made current.

People remember the conversations we had with them. That was the takeaway ­­– being upfront and honest at the start of it all was critical. If you can’t get to know and understand your customer during a difficult time, it becomes even more difficult to understand your customer when the situation turns even direr.

Smith, at Dedicated Commercial Recovery, agreed with my team’s approach, saying the focus of his collection efforts transformed dramatically early during the pandemic. Smith’s company increased the number of people working in customer service, lent an empathetic ear, and leaned hard into overcommunicating. It worked. Dedicated Commercial Recovery saw record growth in its collections totals in 2020.

            “In many cases, it was about changing the approach,” Smith said. “You have to really consider the words you say, how you say them and how those words make people feel.”

The seeds of the pandemic response were planted previously in responses to natural disasters and catastrophic events, with phones, texts, chats, and emails enabling rapid and customized communication more now than at any previous point in human history. What the pandemic laid bare was the need to stay connected with struggling customers at the start of, and consistently throughout, difficult times such as these.

“Had we taken a heavy-handed approach or not been so proactive, our success in 2020 wouldn’t have happened,” said Smith. “The key is frequent communication.”

Get in line

            Tamposi, a bankruptcy lawyer, provided equipment leasing companies with a peek behind the curtain of companies who are forced toward insolvency. “Defaults are usually conscious decisions; they just prioritize other things more,” Tamposi said. “That means,” said Tamposi, “struggling business owners follow a hierarchy on who gets paid. Utilities top the list, followed by banks holding liens, payroll, taxes, critical vendors, landlords, and trade debts.”

At the back of the line are leasing companies and equipment lenders. Understanding your place in line should help you design communication and effective outreach strategies. Ultimately, you most likely will get paid, just perhaps slower than you like or not on what the terms were at the outset.

“Very, very few people borrow money without the intent of paying it back. Most people want to do the right thing,” he said.

Tamposi did have one word of caution for those who may already be caught in the midst of a messy collection process.

“I’m the lawyer your client calls when they decide if they’re going to call you back or not,” he said. “In my view, if you’re involving an attorney, you’ve got a problem. You need to nip it in the bud well before that.”

Advanced planning is key

Tamposi’s business, Lease Security Systems, manufactures Blok Box, a web-based payment enforcement system that’s embedded in leased equipment. When accounts go past due, the equipment can be remotely disabled. In simple terms, it’s much like the cable company being able to disable your services should that bill not be paid. At Quicktrak, Graham provides asset verification inspections for financial institutions – a third-party validation process of prospective loan and funding applicants.

In a way, both of those services dovetail with the proactive measures North Star Leasing, and Dedicated Commercial Recovery took at the onset of the COVID-19 pandemic. Everything – from the terms of the deal to the nature of the business being financed to the options you have in the event of nonpayment should be planned out in advance of any money being lent.

“The key is to have as much information as possible when you go in with a client,” said Graham. “You’ll want to see what the work site looks like, what exactly the business is. Put the Blok Boxes on at the start of the lease when everybody is happy. It’s a less stressful process for all involved if that’s all taken care of before somebody becomes in arrears.”

That was one of the big takeaways from the NEFA panel discussion. Ensure that your collection procedures and policies are fair and enforceable. Have as much information as possible about the company borrowing the money from you, and be prepared to be quick, compassionate, and proactive with your communication.

“Let’s face it,” said Graham, “collections are never fun.”


About the author: Dan Feeney is the Executive Vice President and Manager of North Star Leasing, a division of Peoples Bank.

Preparation and communication: keys to getting paid in difficult times.