How can a satellite communications firm collect on accounts receivable and consistently realize cash from sales? Commercial collection agencies that specialize in the satellite communications industry have salvaged untold amounts of bad debts, transforming them into cash flow. These agencies are able to focus their efforts daily on debtors, stressing the necessity for paying bills, whereas the finance departments of many satellite companies can't afford the time or provide the leverage that an agency brings to bear.
Take, for example, S.S. Sampliner & Co., Inc. The New York-based agency has been involved in media and communications for 40 of the past
66 years. In the last five years, satellite collections have grown from less than one percent of the company's total volume to five percent.
Its client base now includes not only domestic satellite companies, but firms from all over the world. Further, the debtors are located in many regions of the world, and collection efforts involve both private companies and government agencies.
In the area of recovering debt owed by governments, collection agencies face unique challenges. While the threat of lawsuits, judgments and liens acts as an effective incentive for private companies to pay debts, diplomatic channels are often called upon when dealing with governments. For U.S. clientele, the U.S. departments of State and Commerce have proven cooperative in opening doors and making contacts.
The two basic product areas involved in satcom debts are hardware and transmission services, and
in many cases the deal involves a combinations of the two. In the area of transmission services, there are claims involving up- and down-links, including teleports, trucks and other transmission facilities. Companies that owe transponder bills and /or arrange videoconferencing also are the subject of collection efforts.
Teleports that find themselves involved in bad accounts receivable are often the victims of "drop-in" customers that have an event that needs to be transmitted immediately. Faced with empty air time and the need for a quick credit decision, the local credit officer is more likely to make a bad choice.
As far as hardware is concerned, with the proliferation of new products there are a greater number of opportunities for a customer to buy and not pay; the collection claims reflect this increase. As satellite communications become more available to the commercial sector, the variety of potential debtors also increases. While in the past a debtor would usually turn out to be a company deeply involved in communications field, today the norm is more often first-time customers of the satellite industry. In addition to satellites, other communications fields such as fiber optics and microwave are frequently creditors and the same debtor may be found owing a great number of different firms.
The current economy's soft trends are reflected in the number of collection cases. The volume of collection claims over the last five years shows an increase of 32 percent, while the dollar value has increased by 48 percent. Meanwhile, the collectibility rate reported through the Collection Agency Section of the Commercial Law League of America has deteriorated from a rate of 52 percent in 1987 to the current rate of 44 percent.
There has been a reciprocal rise in the bankruptcy cases reported by credit reporting agencies. The stigma that used to accompany a bankruptcy has almost vanished, and large companiesí increased use of the Bankruptcy Act has set an example for smaller companies, which are now more likely to use the same laws to their advantage.
This makes it tougher for a creditor to protect himself against bad-debt losses. Use of a professional third party has proven to be an effective tool for credit managers. And professional collection agencies today use diplomacy and psychology rather than the strong-arm methods of yesteryear. They recognize that although courts of law are available, it is frequently more advantageous to work out payment plans than spend many months and dollars on litigation.
U.S. companies are becoming more involved in the international satellite arena as customers everywhere recognize the value of satellite connectivity. When S.S. Sampliner & Co. began to collect satellite debts, almost 100 percent of its business was domestic. Presently, international claims account for over 30 percent of its satellite business.
Appropriately, the same technology embodied in Fax technology and international phone systems has made it easier for the Collections Agency to performs its function in contacting debtors on a daily and effective basis. A final point of interest made by collection agencies is that whenever an international news event, such as the Pope's visit to Denver, takes place you can almost bet that 90-120 days later there will be new collections placed by some satellite provider whose facilities were used to broadcast the event.
Thus, there is a definite role to be played by collections agencies in this industry. Their effectiveness can save many a losing situation for us, and we should not consider it a sign of weakness to utilize their services. Choosing a collection agency that will represent your interests in a professional manner is the responsibility of your credit manager. A good collection agency can rescue millions of dollars for an organization.
This article appeared in Satellite Communications November 1993