Don't let your sinking dotcom customers take you down with them.
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3 min read

This story appears in the May 2001 issue of Entrepreneur. Subscribe »

Heard about the latest dotcom company to bite the dust? Your interest in that question likely will be affected by whether you have dotcoms on your customer list and how much of your receivables these high-risk operations are responsible for.

Of course, when a customer is in financial trouble, it doesn't matter much whether it's a dotcom or any other type of company. It's just that your chances of taking a hit are greater these days when you're dealing with dotcoms. "The technology area is going to be up and down for the next several years, and these are very risky customers," says Warren E. Agin, an attorney with Swiggart & Agin LLC in Boston and author of Bankruptcy and Secured Lending in Cyberspace (Bowne & Co.).

What are some of the warning signs that a dotcom client is having problems? Agin says a key signal is that they start doing things to conserve cash that they haven't done before. For example, they may begin stretching their payment period from 30 to 45 or 60 days. Or they may start cutting less essential items from the budget. One common thing Agin has noticed is that they stop using the services of public relations firms. "That seems to be one of the things that gets cut from the budget early on when [companies] start to have cash-flow problems," he says. "It's a way to cut the budget without making a big splash."

The most important thing to do when you suspect a dotcom client is in trouble is to respond quickly. Agin tells a story of a company that was owed about $100,000 by a failing dotcom that wasn't paying. The dotcom had cash-about $800,000 in the bank-but they were going through it rapidly and not paying anybody they didn't have to. The creditor moved quickly, obtained a bank account attachment and got paid. "If they had waited around and let it go for a couple of months, they could have ended up getting nothing," Agin says.

If you're selling goods, be sure you know your rights under the Uniform Commercial Code and other applicable state laws. Consult with an attorney to be sure your terms of sale make you a secured creditor, and, if necessary, exercise your reclamation rights promptly. Whether your products are tangible or intangible, be specific about your credit terms and enforce them consistently. "The best strategy is to assess the level of exposure and make sure you don't extend too far," Agin says. "The credit terms you give them might be a little different than what you give customers in other industries. And if you have a lot of exposure in this area, you need to think about trying to balance it out with other types of customers."

Jacquelyn Lynn left the corporate world more than 14 years ago and has been writing about business and management from her home office in Winter Park, Florida, ever since.

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