It's Payback Time

When the tech bubble burst last year, the accounts receivable at Lynn Parker's public relations and branding firm started to accrue so quickly that they threatened the existence of her business. "We had several hundred thousand dollars in overdue accounts, and as the dotcoms went belly up, so did our chances of ever seeing the money they owed us," says Parker, 45, principal and co-founder of Seattle-based Parker LePla. "It was a real wake-up call for us. We knew we were going to have to make collecting accounts receivable a priority."

The down cycle hasn't just impacted those providing products and services to the technology sector. Entrepreneurs in nearly every industry are feeling the pinch of reduced cash flow as they wait . . . and wait . . . for payment. In a time when money is hard to come by for all but the most reliable businesses, letting accounts receivable pile up could cost you the little cash you have left to maintain and grow your business.

"Many of my clients are experiencing a ripple effect from the downturn in the economy," says Los Angeles collections attorney Richard G. Baumann. "The slow payers make creditors wary about their own cash flow." Baumann says that in an up cycle, most entrepreneurs are too lax in granting credit and often neglect having any infrastructure in place for systematic collection of overdue accounts receivable. "In a down economy, business owners shift their operations to focus on accounts receivable issues that may have been languishing for some time."

This article was originally published in the April 2002 print edition of Entrepreneur with the headline: It's Payback Time.