Do large corporations get phone calls from debt collectors?

December 18, 2022 1:06 PM

What usually happens when large corporations don't pay their bills to smaller companies? Things like rent or software or services, not salaries or small contractors. Does this just get settled in court years later? How often does this happen?

Yes, this is related to Twitter, who is apparently not paying some of their bills. But more in general to what happens when large companies, who may be larger than their vendors, just don't pay their bills at all. Some examples:

rent: Elon Musk’s Twitter is allegedly failing to pay rent on its San Francisco HQ
software: Twitter stiffs software vendor with $8 million left on contract, lawsuit says
services: Trump-backed Truth Social allegedly owes $1.6m in unpaid hosting fees

How common or newsworthy is this? Or is this just sensationalized "Net 30" terms?

What can the vendors do to get paid? Is the only option a lawsuit? Rent might be a special case, since eviction is more difficult and finding a new renter is a much longer process.

In the third link, why doesn't the hosting provider just stop hosting Truth Social? Do they have a weird contract that obliges them to continue service even without payment? Or are they just hoping that they will get some fraction of payment if they continue to host, but if they terminate the relationship they will get nothing?

posted by meowzilla to Law & Government (8 answers total)

Why should they stop hosting when they can keep billing them and eventually drive them into bankruptcy protection? But yes, from what I've seen, they try to gum up the courts as long as possible to encourage a fraction of the dollar settlement, most of which goes to lawyers fees over the multiyear battle.
posted by Meagan at 1:11 PM on December 18, 2022

Best answer: I used to work in with the business accounts payable department for a large company. This is different than the group that accepts and processes those payments. We send letters, make phone calls, or send emails when the bill is a few months old. Most things we did were ongoing service, so we could cut people off if they stopped paying completely. Once the accounts was closed, we tried to collect again and then the next step was to refer that to an outside collection agency. If that didn't work, we wrote the money off. That could take up to 2 years.

In these higher profile cases, or the ones with very big amounts, finance executives got involved as well as sales teams to negotiate terms.
posted by soelo at 1:14 PM on December 18, 2022 [3 favorites]

On preview: Bankruptcy changes everything and those companies go down a completely different path. But until the company filed and notified us, we did not involve courts or lawyers directly.
posted by soelo at 1:16 PM on December 18, 2022

Companies sue other companies for unpaid amounts all the time. Other options would be sending "dunning" letters demanding payment, cutting off services, publicizing the non-payment (harming the reputation of the non-payer), trying to collect money through some other method like possessing property, obtaining a lien (like a public statement that the debt is owed), settling the debt for a discount (pay me 50% and we'll call it good), and I'm sure many other things. Big landlords sue for unpaid rent all the time - they can sue for money without pursuing an eviction if they choose.
posted by Mid at 1:39 PM on December 18, 2022

Best answer: One thing that restrains some companies from doing stuff like this is that they can get a bad credit rating from companies like Dunn & Bradstreet, which track how companies pay their bills. If you have a bad D&B score, it can be harder to get loans or leases or to buy supplies or services on credit. Like, suppliers will demand cash up front and some lawyers/accountants and other service providers will not do business with you without a big retainer.

Another thing that restrains this is that companies (especially public companies) that are on accrual basis accounting don't get that much of an advantage from not paying their bills. They have to accrue for the bills whether they pay them or not. If they are issuing audited financial statements, the bills are going to show up as liabilities, which reduce the value of the company. If someone is running a business responsibly (which obviously isn't everyone), accruing liabilities for unpaid bills isn't a big win as compared to paying the bills. Of course, Twitter is privately owned, but Elon probably owes audited financials to his lenders and other equity investors, so it's not great to be accruing a bunch of liabilities like this - it could put him in default on the loans he used to buy the company, for example. Whether the banks will do anything about this is different question.
posted by Mid at 3:11 PM on December 18, 2022 [5 favorites]

I briefly worked for a small manufacturing company that was notorious for paying their vendors very very late. Mostly companies would stop offering us trade credit, AKA the "net 30" type terms, and we would have to either pay in advance of services or pay by credit card. My company liked credit card payments.

We did have a few vendors just refuse to work with us.

We never got sued. I have no idea why my company played these kinds of games, I assume it was cash flow reasons.
posted by muddgirl at 3:56 PM on December 18, 2022 [4 favorites]

I forgot to say that most vendors would do a credit check on our company during our first invoicing so they could see we didn't pay our bills.
posted by muddgirl at 3:58 PM on December 18, 2022 [3 favorites]

Best answer: Yes, large companies get calls from debt collectors - in-house from the vendor, and consultants as well. Those regularly do progress to lawsuits.

What doesn't happen nearly as often as it does in the consumer context is the sale of bad trade debt to a third party investor/collector.

Business-to-business debt will have counterclaims and defenses that relate back to the original vendor, and one of the major incentives for a customer to pay a vendor is to get back in their good graces - while paying off a hedge fund that bought the claim has no such positive benefits for the customer. Overall, it's hard for an investor to pay the vendor anywhere near what the claim is worth to the vendor. You only get robust trading in these kind of debt claims when some customers file for bankruptcy ... and even then only in the kind of bankruptcy where vendors don't get special treatment (which is many of them).
posted by MattD at 7:53 PM on December 18, 2022 [1 favorite]