Softening the Bounce

By Evelyn Roth., Inc Magazine
July 18, 2006

I was recently issued three $6,375 checks by a client. Two of them were returned marked "insufficient funds," while the third one cleared. How should I collect on those bounced checks? --Name Withheld

"First, redeposit the bounced checks, just in case it was a glitch," says Richard Brenner, CEO of the Brenner Group Inc., a company based in Cupertino, Calif., that places interim CEOs and chief financial officers with emerging growth companies. "I wouldn't mess around about the bank's charge on the bounced checks; just absorb it.

"If a check bounces again, call the client and ask why they issued a bad check. If they say, 'Hey, I just don't have the money,' you have a couple of choices. Either you try to maintain the relationship or you go after them with legal remedies.

"I always tell my CFOs to pursue the first choice. Go talk further with the client to find out what the problem is. Ask, 'When will you have the money?' or 'How do we solve the problem?' Or discuss setting up a payment plan. Remind your client that he doesn't want to issue checks that bounce, because it could be a felony.

"If that doesn't work, I'd have my lawyer write a strongly worded letter. But it shouldn't threaten; it should say something along the lines of 'You have a debt to my company. You have issued these two checks, and they have both been returned to me due to insufficient funds, and unless you remedy this within five days, my company will take whatever actions are available to it within the bounds of the legal system.'

"The third step is either turning the debt over to a collection agency or going to the authorities. Bouncing a check that's more than $5,000 could be a felony, so the individual is exposing himself to legal charges.

"However, there's one piece of the puzzle you need to figure out. You have to know that the client has the money to pay you. If his company is going down the drain and you're the catalyst to sending it there, you won't get any satisfaction. So working out a payment plan is usually your best option.

"The amount of money I'd accept depends on the gross margin on the service that wasn't paid for. If it's 50%, then I'd take 50 cents on the dollar and cover my costs. If it's simply that the client doesn't want to pay me, I'm not going to take a portion of the money.

"The real key to collections is, don't give up, because in collections the squeaky wheel really does get the grease."

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