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Failures leave other businesses holding the bag

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BY MICHAEL SASSO

MEDIA GENERAL NEWS SERVICE

Published: March 20, 2009

It was 10 a.m. on a Tuesday when Ray Sikorski saw his worst-case scenario coming true.

An e-mail alert said his second-biggest client, the door manufacturer Masonite, planned to file for Chapter 11 bankruptcy protection. In such cases, small suppliers like Sikorski often don't see a dime of what they are owed. He started envisioning layoffs at his Tampa printing and promotional products company, Verified Label and Print.

"They're not quite big enough to be the nail in our coffin, but it would make it tough," said Sikorski, who does about $500,000 a year in business with Masonite.

His fears were quickly calmed. A Masonite representative called that morning and assured him it intended to pay all suppliers and stay in business.

Still, the short-lived crisis points to longer-term challenges for small businessmen such as Sikorski who are managing to weather the recession: So many of his clients are filing for bankruptcy he's writing off thousands of dollars in losses.

The problem is changing the way companies do business, forcing them to lean on longtime customers for payment, hire collections agencies earlier and, occasionally, to sue. For Sikorski, an even-tempered Midwesterner who has a friendly relationship with many of his clients, it's an uneasy state of affairs.

His employees make most of the reminder calls to clients, but he has to put in at least a call a week to one delinquent client or another.

"I liked it better when it was once every two months," he said.

With the recession raging, failures are skyrocketing in Florida and the Bay area. Business bankruptcies filed with the U.S. Bankruptcy Court for the Middle District of Florida - taking in the central, southwest and north portions of the state - rose 101 percent from calendar year 2007 to calendar year 2008.
Sikorski is seeing the trend firsthand. In 2007, he received 12 notices of clients filing for bankruptcy protection. Last year, that jumped to 27 notices, and through the first two months of this year, he already received 14 notices.

"When we get a bankruptcy notice, we're usually happy to get 15 cents on the dollar," Sikorski said. "We usually get nothing."

His typical loss in such a case is about $3,000.

Printers such as Verified Label may have it worse than most. When cash flow problems start, a company often looks for easy expenses to cut and printers often come to mind, Sikorski said. The cutback in bank lending is also forcing many companies to prioritize which bills to pay.

Taxes and employees should get paid first, said David Jennis, a Tampa bankruptcy attorney. Secured creditors, such as banks, often get paid, too. But the unsecured "trade payables" - the printers, janitorial services and paper suppliers - often are last on the list, he said.

In a way, many businesses are in a race to collect before clients fail.

Business people normally try to resolve things with their clients amicably, said Gilbert Singer, a partner at Tampa's Kass Shuler law firm who handles collections. But lately, more are turning to firms like his, which specializes in business collections, mortgage foreclosures and other cases.

Singer recounted his recent trip to the downtown Tampa Kiwanis Club, where he has been a member for years. "Two or three weeks ago, I literally did not get through the front door before three people approached me and said, 'Boy, I never thought we'd have to use you, but we have some real (accounts) receivables business.' "

Just how hard to push is a tightrope Sikorski walks. He doesn't want to lean too hard because he risks losing future business. But he can't afford to wait months for payment, either.

Sikorski, 41, is a Milwaukee native whose Midwestern accent is still thick even after 21 years in Florida. He moved so he could transfer to the University of South Florida.

"I came down here for spring break, and the rest was history," he said.

He started Verified Label in the dining room of his apartment 14 years ago, primarily printing bar codes for retailers. His mother was his bookkeeper and first employee. Today, he operates in a business park near Tampa International Airport.

Verified Label does less printing in-house these days. It is more of a one-stop shop for printing and promotional products, which contracts out much of the production work on items such as brochures, and polo shirts and golf balls bearing company logos.

Verified Label's revenues are about $3 million a year and it has 12 employees.
Sikorski is adapting his business practices and trying to be more proactive with collections. He admits to becoming too chummy with some clients, which makes it difficult to press for payment.

In one heartbreaking case, a Sarasota businessman in his mid-60s - "that nice old uncle everyone has," Sikorski said - got way behind on a bill of more than $100,000. Sikorski began to press him, trying to remain courteous and tough at the same time.

"Bill, where's the money, man?" he would ask, while reassuring him he still wanted his business.

He even suggested the customer work off the debt over time by coming to work as a commissioned salesman. Ultimately, the man paid off $60,000 and Sikorski lost the rest when the man filed for bankruptcy.

Aside from getting more aggressive with collections, Sikorski is dealing with late payments by setting up a corporate credit card system. Verified Label gives clients 30 days to pay a debt and an additional 30-day grace period. If the client still hasn't paid after 60 days, Sikorski bills the company's credit card.

For now, Verified Label is weathering the storm. Sikorski has built up enough savings to avoid crisis mode, but he's not moving forward.

"It's tough to grow," he said, "when you're worried about collecting what you've already sold."

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