Some Tips on Collecting Money from Farmers
A version of this article appeared in the Chartered Accountants Journal of New Zealand, May 1999.
I know a debt collector who is fanatical about his horses. One day, some years ago, he saw the horse of a debtor in the Methven Cup. He had already entered judgment against this debtor on behalf of a client. He now knew that the debtor had some money coming to him. So the debt collector applied to the District Court for a garnishee order on the Methven Trotting Club.
A garnishee order instructs someone who owes a judgment debtor money to pay that money directly to the judgment creditor. The garnishee (the trotting club in this case) has to pass the money over. The debt must be due and owing. If the garnishee believes that the money is not owed to the debtor, it can go to court to argue that it shouldn’t pay. If the money is not yet due for payment, or the money has already been paid, the creditor misses out. Otherwise, if the garnishee pays the money to the debtor, it is still liable to pay the creditor.
In this case, the trotting club paid the creditor and everyone was happy (except the debtor). But what does this have to do with collecting money from farmers (aside from the fact that some farmers may have racehorses which may occasionally win)?
Well, the problem with this process and the reason it is used so rarely is that creditors don’t usually know about their debtors’ debtors. But in the case of farmers, you may have that information. Dairy farmers, for instance, are generally paid monthly by dairy companies. Therefore, if a dairy farmer who is still trading owes you money, you can be pretty confident of getting paid if you get a judgment against him or her, then garnishee the dairy company they deal with.
The process of debt collection through the civil litigation process is usually one of turning the screws until the debtor decides that paying you is top priority. The garnishment process is different; the debtor’s desire to pay someone else first becomes irrelevant.
My very first experience as a consultant involved a lawyer - a guy who had done his law degree with me - who I used to meet for lunch sometimes. He showed some interest when I told him I was thinking of setting up as a credit consultant and I agreed to have a look at his two-partner practice and its credit problems.
The very basic trap that they were falling into was communicating with their debtors almost entirely by letter. The letters were sent by the administration staff in the firm. My (at that time free) advice to him was to get on the phone. Some days later he rang me to say that he had phoned his second-to-largest debtor, a farming couple who had owed more than $10,000 for over a year. He spoke to the wife and found that rather than being outraged at his call, she was extremely relieved to finally face up to the matter. "I haven’t been able to sleep for worrying about this," she told him. There was a wool cheque arriving the next week and she used it to pay the law firm ahead of paying the bank.
There are a few incidental lessons about dealing with farmers in this story. In the case of mum and dad businesses, it often seems to work out that the mum does the books and writes the cheques. In such cases, the right person for creditors to talk to is the wife. Whether the wife does the books or not, if you’re dealing with a traditional farming family where the husband goes out into the fields all day and the wife stays closer to the house, the wife is more likely to be contactable during the day. Otherwise, calling farmers to ask them for money means staying at work late and calling them in the evening. Lunchtime phone calls, a waste of time for many other business debtors, can also be worthwhile when it comes to farmers.
Otherwise, this story says more about credit management in professional firms and about why debtors hide from creditors than it does about farmers. Partners in professional firms are often afraid to ask clients about overdue bills, even when the situation becomes desperate. Meanwhile, the client is also afraid - paralysed with fear and afraid to face up to the issue. Effective debt collectors - especially those dealing with customers face-to-face - know that one of the common reactions from debtors they contact is relief. The debtor may not be able to pay the debt immediately like the farming couple in this tale, but a dripfeed arrangement will often satisfy the creditor. The insurmountable problem suddenly starts to look more manageable.
Last farming anecdote - about 1989, there was an ad on television which showed a farmer and his wife. Farmers were still going through the pain of the loss of subsidies and were generally not too happy. These two weren't happy. You could tell by the angry way the wife was hanging the washing up. The husband, meanwhile, was tinkering with his tractor. Then the dogs started barking, and they saw a car in the distance, winding up the hill towards them along the dirt road. The two stopped what they were doing and watched it. You could see the worry on their faces. Then the car with a Telecom logo pulls up and a friendly serviceman says, "somebody here wanted a phone put on?".
Suddenly it's happy faces all round. The greatly relieved farmer escorts him inside, explaining, "we thought you were from the bank..."
The message Telecom's image-makers had intended for the New Zealand public (before they discovered singing and dancing animals) was, "see what a wonderful, public-spirited New Zealand institution we are." The unspoken message was, "Telecom don't mind that you can't pay." You really have to watch the messages you let your marketing people send to customers.
A version of this article appeared in the Chartered Accountants Journal of New Zealand, May 1999.