The Lesson of the $3 Million Prepay

So, he has to prepay $3 million for one of the better attorneys that know how to deal with the Justice Department. The reason for the prepayment? Because it has been said that he stiffs people and that he has done that for a long time.

This is a lesson on what happens when one constantly stiff people or take too long to pay. I once worked for a company that was kind of similar and is the main reason and focus for this post.

The company I was in was bought out by a European company, leading senior management to quit for greener pastures. The new financial management that came in proceeded to do some things that I regarded as very harmful to the life of the company (but possibly very helpful for the shareholders).

What did they do that I thought was harmful?

• Well, they put on hold for at least 90 days payment of suppliers and TOLD NOBODY about his new policy. I received calls from suppliers asking why they were not being paid and nobody in the corporate office would return my calls. It was much later that someone returned my calls and whispered to me the new policy.
• When a recession came around, they of course froze salary increases and indicated senior management would also not receive bonuses. But then a year or so later, reinstalled the bonus program. As a matter of fact, one of the participants in the bonus program was kicked off of it but he was able to see the account for the program. The payout remained the same, just some people kicked off. How’s that for retaining employees?
• The company stopped making capital investments in its infrastructure even though we were an IT company with a help desk and a network monitoring service. But hey, no, no expenditures were approved to maintain or upgrade the equipment. I once looked through the general accounts and saw the capital account decline to zero. With disbelief, I tried to find other capital accounts but was unsuccessful, so I don’t know. It appeared the company stopped capital expenditure. As a matter of fact, we lost a customer because they said we “were not making capital investments”.

Fortunately, I was able to leave the company and my timing was fortuitous. I must have left about 8 or 9 months before the company imploded. As far as I know, there were 2 reasons for the implosion: 1) Italy had some financial improprieties or fraud and 2) the US section of the company lost 2 largest clients. My impression was that those 2 clients were the majority of the US revenue.

The implosion was probably not solely due to non-payment of invoices, but I believe those non-payments were the seeds of later disaster. A lot of vendors quickly moved to demanding upfront payment before they would deliver services or products. That often led to “ok, we’re not going to buy” which then further weakened the company’s service capabilities.

As for tfg? I’m not counting him out because he has an astonishing ability to survive and rise. I mean, think about it. Six bankruptcies and he still manages to be ultra-wealthy? He has multiple cases moving against him and he is still going about his business?

But for the rest of us…we can’t stiff people and expect to remain in business.