Stamping Out Overdue Bills

At Stampa Barbara, which bills itself as the world’s largest rubber stamp store, they stock a creative prescription for the nagging business headache of how to collect bills that are overdue.

It’s a rubber stamp portraying a hooded executioner and the words “Pay or Die” or, for the less adamant, “Final Notice.”

“From time to time, people have wanted a stamp for that purpose, and we’ve given them a screaming head or an ostrich that is screaming or any character with an expression of energy. It attracts attention to the envelope and it makes it more personal and more likely to be opened and it gives a sense that there’s a person at the other end,” said Gary Dorothy, who started the original store in Santa Barbara in 1984 and now operates a version on trendy Melrose Avenue and another in Costa Mesa’s Crystal Court shopping center.

“I’ve had people come back to me and tell me, ‘Since I started using the stamps, it’s been really good,’ ” said Dorothy, who carries tens of thousands of rubber stamps at his three stores.

That’s one approach. But for business owners whose growing accounts receivable have stripped them of all vestiges of humor, there is much more that can be done.

The key is to start before a bill goes unpaid for a long period. In fact, the best time to begin thinking about collections is before you even make the sale, according to Lisa Spiwak (pronounced SPEE-wak) and Nick Iezza (YAHT-zuh), lawyers whose Encino firm is one of a handful in California specializing in debt collection.

And when a debt does go sour, jump on it quickly, they said. California laws make this an extremely creditor-friendly state.

“I can’t tell you how many companies are so desperate to sign up new accounts that they don’t think ahead,” Spiwak said. Among the lawyers’ tips for making your business less vulnerable:

* Train your sales and credit staffs together so that each understands the importance of the other’s job and how to avoid bad debts. You don’t want the sales staff bringing in lots of accounts that ultimately don’t pay, but you also don’t want your credit department turning down so many accounts that the business can’t grow.

“Most of the sales force knows one thing--they know how to sell,” Spiwak said. “It’s very important for management to get the sales department and the credit department working together so that the sales team, when they’re out there getting an account, are thinking in terms of credit.”

* Insist that customers fill out a credit application in front of your salesperson. Design the application so it is easy to read and understand, with large type and simple language. Make sure customers provide such basic information as whether the business is a partnership or a corporation and what its real name is.

* Have a principle of the company sign a personal guarantee that the bill will be paid. A small company is frequently 100%-owned by one or two people. Make sure your sales representative watches that person sign the guarantee. (“So many times people will say, ‘I didn’t sign that,’ ” Iezza said.) Get that person to print his or her name under the signature and to provide a Social Security number and driver’s license number, or even a copy of the driver’s license.

* Get a good look at the business. If the credit agreement is secured by specific assets, make sure the assets exist.

* Get credit references. Check them out.

“A little bit of work on the front end will save you a lot of heartache at the end,” Iezza said. “You may lose some sales, but it’s better to lose them than to have them put you out of business later because you couldn’t collect your accounts.”

When a debt looks as if it will not be repaid--the amount of time a company is willing to wait is a policy that must be set beforehand and adhered to consistently--then speed is important, the lawyers said.

“You need your bookkeeper or whoever on the phone with that person when the check doesn’t come to start a dialogue: ‘What’s the problem? What’s going on with cash flow?’ ” Spiwak said.

“Debt collection is a race,” she said. “You’re going to be the most aggressive creditor so you’ll get paid first.”

Debtors tend to fall into categories that determine how to approach them, the lawyers said.

* Peter Pleasant, a pleasant debtor who feels remorse and wants to work out a plan to repay, should be dealt with courteously. Display empathy, and he will want to pay you first. This type of debtor is becoming rare.

* Priscilla Persistent, who admits she owes money but won’t commit to or follow a payment plan, should be contacted frequently by phone and letter. She should be handled sternly. She must be reminded of the consequences of her actions and told again and again to do something.

* Pierre Persuasive is rude, uncooperative and becoming very common. Skip the follow-up telephone calls and immediately begin litigation against him. He frequently will not pay even after a judgment has been obtained. Then it is necessary to seek a judgment execution that allows foreclosure, bank levies, wage garnishments and other measures. Winning a judgment means little unless you can actually collect.

There are several red flags that signal a problem with an account, Spiwak and Iezza said, including:

* At the time of sale, refusal to sign a credit agreement or a personal guarantee for the debt.

* Refusal to give a tour of the business.

* The inability to get the debtor on the phone.

* “The check is in the mail.” People really do say that. If someone does, ask them to fax a copy. If the check doesn’t arrive within one day, tell the debtor to stop payment on the check, issue another and send it by overnight mail or by messenger.

If everything fails, Spiwak and Iezza say, business people should seek help from lawyers that specialize in collections. Don’t go to the lawyer who drew up your will or handled your divorce, they said.

Most lawyers work on an hourly basis when collecting debts, but Spiwak and Iezza will work for a contingency fee, meaning they get paid only if they successfully collect the debt.

The 4-year-old, 14-employee firm, which goes after debts of $15,000 or more, claims a high success rate because of its aggressive tactics and use of technology, which allows it to file quickly with courts across the state and locate assets.

“People ask us all the time, ‘How can you do what you do?’ ” Spiwak said. “We take immense satisfaction in what we do. We have given these debtors every opportunity to pay their debts. If they don’t have enough class and enough character to pay what they owe, I feel that they’re just like a thief.”