First, for the accounting purist out there, let me acknowledge that I am not using the term "write-off" with its precise technical meaning.  Like many small businesses, I use the cash-method of accounting.  This means that the income is not counted until the payment is received.  And, since these payments were never received, there is really nothing to "write-off" (and no deduction on my taxes for these uncollected bills).  What I mean by write-off, instead, is that I zeroed out the balances with a notation that it was never collected; just to clean up my books.

The first interesting thing I notices was that collections problems really began in 2004.  And, there were a lot of them.  This is around the time we really started to notice clients doing things like making partial payments - they would pay the search fee, for example, but not the additional copy charges.  It was clear from my review of our files that from 1993 (when I started) to 2004, clients paid our invoices in-full.  I'm not really sure why this ever changed.  It seems simple enough - we send and invoice and the client pays it.  That worked fine for years, but for some reason in 2004, that all changed.  It continues to be a problem today, but we keep a much closer eye on it.

The next thing I noticed was that we had added a lot of new clients since 2004.  And, it was clear that we had the same problems many others have complained about on the forums - fly-by-night vendor managers who ordered searches for two or three months and then disappeared without paying the bill.  Rather than well-established title companies, our clientele had suddenly changed to lots of little vendor management companies.  These losses were typically smaller, but there were more of them than I care to mention.

I have said it before, and I will say it again.  There are some good vendor management companies out there, but the majority of them are underfunded ( of the we-can't-pay-you-until-our-client-pays-us variety) and they are constantly the ones that seem to have trouble paying their bills on time.  Just to be clear, it is not my job to extend lengthy credit terms to you because you can't seem to collect from your clients!  Here is my suggestion to them - give me your clients and I will do the work for them directly; let it be my responsibility to collect from them if you cannot handle your business.  I have no desire to work for a second rate middle-man who cannot manage his affairs.

The write-offs associated with these vendor management companies mainly fell into two categories: (1) they constantly underpaid their invoices, leaving a balance that never got paid, or (2) they ordered searches that they clearly never had any intention of paying for.  My clear conclusion was that vendor management companies have been a terrible thing for independent abstractors! 

The last category of write-offs was of a more traditional nature, defalcations.  I noticed a couple of well established title companies that have simply gone under (with notoriety).  This has always been a risk for independent title abstractors, but has become more common lately than it used to be.  Though these are more rare than the typical deadbeat clients, when this happens the balance is usually much larger.  And, it really hurts the bottom line.  It is particularly more painful now because business is so slow and it is hard to absorb such large losses. 

In the end, there is about $7,000 worth of work we have done that we will never see.  It could be much worse, I guess.  We have always tried to cut clients off before balances got too large for us handle.  But, I am still a little angry that things had to change this way.  We have always tried to operate in a very professional manner and we do expect the same from our clients, both large and small.  Unfortunately, you just cannot count on all of them living up to your expectations these days.

So, what do I plan to do about this?  I'm not really sure.  Clearly, there is nothing I can do about this $7,000; it is already gone.  But, I do plan to take control of the situation in 2012 so it doesn't happen again.  I am considering requiring new clients to sign contracts - something I never really felt was necessary in the past.   I may require some new clients to sign personal guarantees, so there is a real, live person I can collect from if the "company" goes defunct.  I am also considering new clients to submit a deposit, refundable after a certain number of months of on-time, in-full payments.  Do I expect that to be well-received? No.

Part of the problem with insisting that clients take responsibility for paying us on our terms, is that it is certainly not "the norm" in this business.  It is too easy for them to find someone else to do the work who will not take these kinds of steps to protect themselves.  Others will simple take the work... then complain when they don't get paid.  That makes it very difficult for any of us to insist on reasonable controls over our accounts receivable. 

But, maybe it is better to give up those clients than to get stuck again.  Sure, I may lose out of the opportunity to add a good client who doesn't want to jump through those hoops to order a search.  It might be worth it to filter out all of the deadbeats who will be more hassle than they are worth, and who will ultimately leave me with a large outstanding balance.

The industry will turn around eventually and work will pick up again.  As I rebuild our abstracting business, I want to do it with good, reliable clients.   I do not want clients that cannot pay us on-time (Net30).  I do not want clients that will not pay our invoices in-full.  I do not want clients that plan on running up a bill and switching to a different abstractor when our bills are due. Maybe this is the only way.

My game plan for 2012 is to start running my business and stop letting clients tell me how to do it.