A sales representative and customer shake hands, and, most importantly, reach a final agreement on terms of the sale. Like Rick and Louis at the end of Casablanca, they head out to what they hope is "the beginning of a beautiful friendship."

But then—after 30 days, let's say—the bill comes due. No payment is received, so some 30 days later, a second reminder arrives at the customer's company. Then what?

Abe Walking Bear Sanchez is an accounts receivable speaker as well as a consultant to the Specialty Tools & Fasteners Distributors Assn. He formerly served as a corporate credit manager, a position he, tongue-in-cheek, describes as "being a guy with the shovel following the parade." From being involved in various levels of accounts receivable over the years, he believes that a past- due account tends to fall into one of three "types."

Ideally, the largest percentage of these will be Type 1.

"These are 'slow pay,'" Sanchez says. "They are good customers and have been around for a while in a stable industry. They have the ability to pay, and their check will clear. But they have a history of paying slowly."

The larger corporations that make up Type 1, he says, pay slowly as a way of practicing cash management. They use their suppliers as a form of short-term financing. The smaller companies who fit this profile aren't practicing cash management, Sanchez says, but they tend to be somewhat sloppy in bookkeeping.

"Somewhere on their desk or in their system is your invoice," he says. "If they can find it, they are happy to pay you."

Type 2 accounts will tend to blame either systems-based problems or financial problems. The system-based problems are described by Sanchez as complaints about missing purchase orders, missing contracts or unissued contracts; misapplied credit; and proof of delivery. Financial problems more often occur when customers don't have the money—frequently due to their having to wait for accounts of their own to get around to paying them.

"They have to wait for customers to pay, or they tell you, 'We don't bill out until the end of month'," or "We have some unanticipated expenses,'" are examples of what Sanchez describes as their (usually honest) responses.

Type 3 accounts represent the smallest percentage of past dues, but can be hugely influential, Sanchez laments, because they color people's thinking on past due management.

"They are just out to avoid payment," he says. "They'll tell you it's a system problem but even when you fix that, they don't pay. They're uncooperative, won't return calls…."

Phrases like "down Web site" or "call cannot be completed as dialed"—not to mention "bankruptcy"—are also connected with a Type 3.

There are varying schools of thought and action as to how best to collect on a slow-to-pay account receivable. In INDUSTRIAL DISTRIBUTION's 57th Annual Survey of Distributor Operations (Aug. 2003) several respondents said they were bringing their salespeople into the collections process.

Sanchez goes along with this, emphasizing to his clients that accounts receivable "are a completion of the sale….The only reason for a business to incur the cost associated with extending credit is in order to get a profitable sale that might otherwise be lost. The whole thing is a sales function."

Eric Seiden, vice president of Interstate Screw Company in Hialeah, Fla., may agree philosophically, but not to the extent that Interstate sales reps become involved in chasing a slow account. Often times, salespeople have a personal relationship with their customers. Is there a point where companies should tap into that and involve them in collecting slow or late payments? Seiden says no.

Salespeople and credit managers are "two totally and distinct separate people," Seiden says. "You don't want to jeopardize the [sales] relationship."

The very fact that sales can involve developing personal relationships with a customer is a key reason Seiden is leery of sending salespeople in as part of the bill-collecting troops.

"If I'm selling you something—and even though it's not my fault your company is not paying—but I come in and nag you for money, the next time you see me you're going to be thinking, 'This is the guy that's been bugging me.' Unless we plan on never selling to that account anymore, we don't send the salesman to ask for money."

However, there are occasions when Seiden does think that a sales rep's expertise and familiarity with the account can be an asset in the collecting phase.

"This is not to say that, if there's a question about an invoice, for instance, that we won't bring in the salesman. That's different. The customer is asking for an explanation or a clarification, but not for money," he explains.

He also suggests that sales can be helpful if a company applies a variation on the old "good cop-bad cop" approach, as Seiden describes it, working in conjunction with his company's credit manager.

"We won't have the salesperson say, 'We need you to send us a check or I can't ship your order.' That's what our credit manager does," Seiden says, when asked to give an example. "But a salesman might say something like, 'You get me half the money and I can get the credit manager to release your order.' Of course, all along it was actually the credit manager who made the decision to let him do that!"

During the past couple of years, the economy or recession has been part of the reason for slow paying. Seiden sympathizes.

"Sure, everyone blames it on the economy. But you know what? All customers have accounts that historically are slow paying," he says. "The ones truly affected by the economy are the ones who didn't used to be slow paying, but are now. I have other accounts that used to pay me in 10 days, but now take 50 or 60 days."

At what point is a long wait too long a wait? When does that first call/fax/e-mail from a credit department go out? In the 57th Survey of Distributor Operations, 46 percent of the distributors said that it takes 45 to 50 days for their customers to pay, with the average being 45 days. Seventeen percent said it was taking up to 60 days to receive payment.

Interstate Screw has customers ranging from the mom-and-pop carpenter operations to large companies with overseas plants. Seiden says Interstate will wait until almost 60 days to call or make contact.

"Nobody's paying in 30 days," he says. "I have huge multinational companies who don't pay in 30. And it trickles down because everybody has cash flow issues."

As an example, he refers to a "little cabinet shop" with which Interstate has dealt.

"The little cabinet shop pays me more slowly because his customers pay him more slowly," he says. "I get paid slowly, so I've got cash flow issues. Happily, we're large enough that it doesn't affect us nearly as much. But the further down the chain you go, the worse it is."

So it's time for the credit manager to make contact. What is the best approach to take for that first potentially awkward, "When will we see a check?" conversation? It can vary from customer to customer and company to company.

"It depends on who you are talking with," Seiden explains. "With some companies, you talk to the owner; with others, you get an accounts payable person. When talking to the owner, it's good to be more diplomatic. 'Oh, you must not have received the invoice because it's 70 days past due, we've noticed.' Because if you irritate the owner, he can tell his purchasing agents not to buy from the company. Then there's nothing the salesman can do to fix things."

If the contact is in the accounts payable department, nobody is kidding anybody about the purpose of the call, Seiden points out.

"We'd say 'Listen, you're not on credit hold yet but we notice there might be some money due soon,'" Seiden says in describing such an approach. "And half of them will respond by saying 'Yeah, we're going to process your check next week.'"

"If they've told the truth in the past, then it's fine," Seiden says. "That's the end of the discussion."

Fool me once, but fool me twice?

How best to avoid the "no pays" and at least be able to cope and work with the "slow pays?"

Sanchez emphasizes to his clients that they need to identify the Type 2 early on, in order to control their bad debt. Slow pays may be inevitable these days, but he urges companies to "learn how to control bad debt and not run scared of it."

He recommends focusing on better performance measurements, including using the credit manager and customers for feedback and insight into what to watch out for.

A good example of the latter can be found at White Cap Construction Supply. Started in Santa Ana, Calif. in 1976, it currently has more than 70 locations throughout the U.S. After tapping into feedback from their customers, as well as its credit people and sales staffs, White Cap redesigned its invoice statements last year.

"We've experienced tremendous growth the past few years," says Bob Mealey, White Cap's director of credit. "With that growth came a need to bring more technology into play. But the biggest driver was meeting the customers' needs."

Customers had been asking for their invoice statements in what Mealey describes as a "job format." For the new format, a new "sort and subtotal" option is offered in which statements can be sorted by specific job and job number.

"We have customers who work on dozens, if not hundreds, of different jobs," he explains. "[The new format] gives them the option of getting their statements sub-totaled by the job, for purposes of billing their customers."

Credit managers had been manually providing this data on a per-call basis. "So it met a customer need, but also brought technology into play to make an inefficient process efficient," Mealey says.

Each statement shows "the 'aging,'" as Mealey calls it. There are current 30, 60, 90, and 120 day past-due columns on the statement, as needed, and "the 90 and 120 are highlighted to draw attention."

But no mere system can eliminate a slow pay account from occurring. What then? Technology is great, but White Cap hasn't eliminated the telephone and personal call from its collection process.

"We handle it one-on-one with the credit managers and find out what's going on," he says. "You still have to communicate, because there might be circumstances we don't know about. And that could make all the difference in the world in how we handle the collection."

Clearly, each company's approach to slow payment will vary. What works for one may not be applicable to another. But one thing that can help is to keep a sense of humor—albeit the graveyard variety.

As Interstate's Seiden puts it, "In this market we're all hoping to be paid one day, but we're not able to say just when that one day is!"