by DEAN KAPLAN
Hospitality is a seasonal industry. Very few places are truly year-round tourist destinations and 2020 didn’t help. The ups and downs of your business mean your cash flow will naturally be lower during some times of the year.
During those times, you might get behind on your bills and you may find yourself facing unhappy lenders or collection agencies. To protect your business, it’s important that you understand your rights and have some strategies in place.
You may have heard of the Fair Debt Collection Practices Act (FDCPA). This is a series of federal laws that control how and when collection agencies can pursue individuals. The FDCPA does not apply to commercial debt or to businesses attempting to collect on the money they are owed. So, there’s nothing preventing your laundry service, or someone they hire, from camping out in your lobby and demanding payment.
Don’t panic. There are very few collection agencies that would consider that good practice. Understanding that FDCPA does not cover your hotel’s debt will help you make better plans and arrangements.
PROTECT YOUR CASH FLOW
The most important strategy is to protect your business and prevent cash flow problems. While there’s not much you can do about a lack of snow during ski season reducing bookings, you can make sure that when others owe you money, they pay you on time.
Running a simple credit check on any new client can prevent you from going into business with fraudulent companies or poor credit risks. It’s also essential that you have accounting software that allows you to both issue invoices and follow up on them promptly. Just as sloppy housekeeping can hurt your business, so can sloppy recordkeeping.
Ideally, you will pay all of your bills on time. But, if you can’t, you may need to prioritize which bills get paid first.
Consider moving those that are essential to operations and that directly affect your guest experience to the top. You should also review any credit applications or contracts that you signed. If you have signed any agreements that name you as a personal guarantor, you may be personally responsible for any unpaid invoices – giving those priority as well.
You should negotiate terms of payment before signing a contract and entering into business with someone. You might consider asking for a reduced amount if you pay in advance or longer payment terms if you order in bulk.
If you run a small hotel, you might be able to join forces with another small business in your area to get bulk discounts. When possible, see if you can order offseason or in other unusual ways that might encourage a vendor to reduce their prices.
Even after a bill is owed, it’s possible to renegotiate your payment terms. If you are generally a good client, being open and honest about why an invoice isn’t being paid may encourage your lender to extend you more time or reduce late fees. You might be able to trade accommodations, meeting space or other perks for the money you owe.
If you’re dealing with a collection agency, remember that commercial collection agencies usually work on a contingency basis. They would rather strike a good deal for their client and get paid themselves, then let the account drag on.
DON’T IGNORE THE DEBT
Individuals and companies are often tempted to ignore calls from debt collectors or vendors to whom they owe money. This is never a good idea.
If you ignore an important vendor, you may never be able to repair the damage to your relationship. There are very few debt situations that cannot be worked out, as long as you are willing to face the problem. If you don’t work it out, the only option you are leaving your creditor is to sue.
Some collection agencies have a network of attorneys who will take collection cases on a contingency basis, so it’s an easy decision in those situations to litigate. This drives up your total cost with interest and having to pay your attorney. You can usually work out a better deal than forcing yourself into litigation.
No one likes owing money. No one wants to be owed money. But, if you plan ahead to reduce the number of times you are unable to pay bills and deal with any bills you have trouble paying promptly and honestly, you can reduce the risk to your business and your stress level.
Dean Kaplan is CEO and President of The Kaplan Group, a commercial collection agency specializing in large claims and international transactions. He has 35 years of manufacturing, international business leadership and customer service experience. Today, he provides business planning, training and consultation to a variety of global companies.