Dealing with Deadbeats

A striking lesson in leverage against a larger opponent.

The worst part is the silence. Experience says silence means they have nothing but bad news to report, and they’re afraid to report it. The technique is notably effective when conveyed (or not because it’s silent) across 10 or more time zones, thereby avoiding real time confrontation. Silence seldom means anything good.

So they say nothing. Employing the time-tested method of patient endurance, they expect by saying nothing that attention will be diverted inevitably, enabling the problem to magically go away. Just like politicians’ common practice, taking a dim view of voters’ average intelligence and grasp of the facts. People have short attention spans. They know that. They count on it.

The problem never goes away. Receivables still age until they’re settled. You have to push. They need to know that you know. Otherwise, they wait it out, and the silence, their friend, prevails. Notch one more for them. And you’re still not paid.

It’s true, every now and then they’ll throw you a bone to knock you off the scent, change the subject, and leave them alone.

Our apologies. We’ve experienced some turnover in our accounting department. Please be patient as we undergo some personnel changes, and we’ll pay your outstanding balance as soon as possible.

Stalling Tactic #1: Thank you for your patience.

Time to appeal to the principals.

Not my job, say the engineers and the engineering managers. Assuming they respond at all.

Wrong department.

Plausible deniability thrives in a far-flung organization. Easy to blame a faceless Someone Else of an abstraction who’s halfway around the world, and beyond accountability.

We persist.

To our new demand for payment, the response is anodyne and formulaic.

We await closure of our latest funding round. It will be a few more days, possibly a week or two but, rest assured, your account has been given highest priority for payment.

Stalling Tactic #2: Keep thanking them for their patience.

The dynamics change overnight when they want something. Suddenly it’s urgent, and emails get returned. Their request – really a demand – reeks of entitlement:

I have a high-level expedite request coming in from one of our key customers that needs these parts. Is there any way you can please expedite these parts for us and complete today for pick-up either tonight or first thing in the morning? That would allow us to complete our stuff and ship something on Saturday; otherwise, we are in next week. You guys have always done a great job for us, and I’m hoping you can pull through on this one. This customer is about to give us a large new contract which will be great business for both of us going forward. This will help seal the deal. Let me know if there is someone else in your organization that could help if we escalate our request.

Escalate? To whom? In case you missed it, the title on the email was P-R-E-S-I-D-E-N-T.

Busy guy. Doing important work. Short attention span shows he has his priorities straight. Nice touch on his part, dropping the hint that we could make beautiful music together next year, if only we have x-ray results by 8 a.m. tomorrow morning. Thus inspired, let’s take that hill. Wondrous things they teach in MBA school.

There’s still that inconvenient matter of nonpayment.

We try a third time. The answer is the same.

We continue to await closure of our latest funding round. It has been delayed several times due to banking complications. We await closure any day, and we thank you for your patience.

As if we are a bottomless pit of patience. Which we are not. So much for Stalling Tactic #3.

It all started promisingly enough, five or six years ago. They came to us. Local engineers looking for local support. Local failure analysis, performed in a week or less to give feedback to the line. Drop parts off Monday; receive uploaded images by Friday. Sometimes sooner if we weren’t that busy. We’d charge by the hour: typically two to four hours per job, done during our swing shift. It was not uncommon during slow periods for parts to be dropped off at 5 p.m., with results available the following day or the next day at the latest. At busier times, during an epidemic of failures, not unknown in this business, with long x-ray queues, results might wait for three or four days. But always done in a week or less. And we got paid in about 30 days. They were content; we were content.

They sealed their confidence in us with a blanket purchase order, covering six months’ failure analysis activity, in support of multiple engineering teams. No need for new quotes, and new orders, for every project. All they had to do was drop the parts off, notify us whose project it was, and the rest would happen, on trust. Autopilot actually. Nice business.

Enter Private Equity. Our cozy little relationship was merged and acquired into a state of operational frenzy. Our locally based customer, with intimate knowledge of us, and we of them, became, courtesy of financial engineering, a micro cog in a macro, multinational wheel. Somewhere, somehow, our x-ray services became, in the minds of those driving spreadsheets, indistinguishable from a vending machine: insert units here, expect images there, on demand, every time. Alert and in readiness 24/7. Like flipping a switch. At a bargain hourly rate. At their beck and call on the metaphorical Front Porch, sipping metaphorical mint juleps until the siren sounds.

As if we have nothing else to do.

Private equity wants services faster. The spreadsheets were specific: everything needed to be done overnight, including x-ray and CT scanning services. The fate of everything hung in the balance, 100% of the time. Operating expectations were that parts would always be dropped off at 5 p.m. and picked up the following morning at 8 a.m., every time. For no premium.

And no payment.

Being private equity, they wanted to preserve the asset side of their balance sheet, especially the short-term asset conventionally labeled, “cash and cash equivalents.” The best way to preserve that asset is to not spend cash. Which to their way of thinking is acceptable because cash only goes to vendors (none dare call them “suppliers”). Vendors are expendable (see note above about vending machines). Better to hold it as long as possible, until the vendors scream.

Curiously, beginning with the consummation of the acquisition, payment times began to lengthen. Aging increased from 30 days to 45 days, to 60 days, to 90 days. The increases happened gradually, resembling the predicament of the slowly boiling frog, whose doom is sealed when he realizes the harsh reality of his situation, too late. They rely on our not noticing.

We noticed.

Especially when July invoices, for very rapid-turnaround FA work, remained unpaid in November. Irony noted, and reciprocation is for suckers.

Something must give. We have something they want, desperately. So much so that their managers are calling to micromanage completion and delivery.

We understand you operate a swing shift. We’d like you to x-ray our units this evening, so that we may pick them up, with images, first thing in the morning.

They have something we want.

We understand you operate what could best be described as a scam, trading worthless promises of payment for performance concessions from us. Nice try.

Time to play the Ace of Spades.

Dear Customer,

You have not paid us in two months, despite numerous requests for payment status. It is now November. Your company owes us $XX,XXX.00 to date, most of it in past due invoices going back to July, 135 days ago. Our terms are net 30, not net 135. I have repeatedly asked your colleagues and your management to allow me to speak to someone in authority at your company who can pay these past due amounts and pledge to honor our terms going forward. To date I have had no response to my request but silence from management. Silence is not a response. I have also repeatedly emailed your Accounts Payable with the same request. Same worthless response: silence, punctuated by occasional weak pleas, detailing excuses such as personnel changes, pending funding rounds, and flimsy arguments unsupported by facts about net 120 being standard business practice in our industry. Personnel turnover is no excuse for nonpayment. Nor is the timing of funding rounds: that’s what lines of credit address. As to the argument that net 120 is the norm, see the April edition of Aviation Week*. Be careful about making unsupported assertions regarding standard business practices. Come up with a better argument. Better yet, pay your bill.

Unless and until this problem of nonpayment has been addressed to our satisfaction, we will hold your parts and the x-ray results at our facility. We hate to do this, but your actions – or rather, lack of them – leave us no choice. You created this problem, and you can solve it, as fast as we are able to inspect your parts. Well, almost as fast. Back to you.

Thank you for your attention to this urgent matter. You know how to reach me if you wish to discuss further, which would be uncharacteristically refreshing.

Happy Holidays

Full payment of the past due amounts cleared our bank within 72 hours.

*Kevin Michaels, “Suppliers Aren’t Banks: Why Payment Terms Need to Change,” Aviation Week & Space Technology, April 10-23, 2023.

Robert Boguski is president of Datest Corp. (datest.com); rboguski@datest.com. His column runs bimonthly.