Get Paid According To Established Terms – #24

The key Management lesson to be learned from this Blog lies in the fact that you don’t ship any more goods until the Customer pays outstanding bills. This will require a very strong Credit Manager to battle both an array of Internal Managers and External factors such as Customers who want to be trusted “or else”. The fact that you can lose a large and longtime Customer is a reality, and will require the intervention of top Management between the Customer/Sales/ and Credit.

However, a policy of getting paid is necessary in any business. This policy is to be reviewed and put in place by every affected Manager. In today’s world of various degrees of fraud and lax bankruptcy laws, too many businesses abscond with payables money or get involved in various schemes all detrimental to employees who supply their loyalty to Management hoping that they will have job security, steady income and a reasonable retirement through their 401 Plans to which they contribute and the employer matches their contribution. The following represents a sad but real situation that happened a Treasure Island Food stores –six store food operation which suddenly closed their doors on October 12th. I am very close to the situation due to a close relationship with one of the employees that suddenly (without Notice) found herself unemployed after 20+ years of service without any information detailing the store closing.

It takes the founder years to build the business, and the next generation of family members a few years to destroy it. This is what we see in Treasure Island Food Stores. The founder Mr. Kamberos passed away a few years ago leaving the business to his wife Maria who became President for a while since she was familiar with the business, but two years ago she turned over the Presidency to her son Christ Jr. to run five of the six stores – she kept one of the stores under her wing. Christ had worked at the stores in varying positions, and all indications pointed to a very successful transition. Too bad, because Christ managed to not pay any bills to vendors who wanted to go along supplying goods without getting paid. Christ and Maria knew what they were doing – not paying for goods – that finally ended on October 12th when the stores were out of goods to sell in all six locations. Where did the money received for goods sold go?

The employees just stood by without raising any questions with Christ and Maria, the media, vendors etc. – each one of them knew for quite some time that the stores were having difficulties and that store closings were only a few months away. Where were their concerns during this critical time, as the ship continued to sink? This action indicated that the employees were afraid, and simply had little power to affect Management. I will continue to back all the employees due to the fact that they had complete trust in Maria and Christ, but they in turn seemed to have zero loyalty and concern for their employees. They found themselves without a job on October 12th, without insurance, and not clear on any other subjects, such as how to secure unemployment benefits and payments for accrued time off and vacation days. This after 25 years of loyal service and a positive outlook towards doing good work until retirement age. Christ simply closed all the doors in their faces – didn’t they receive better treatment?

Here’s what we know:

  • The employees were notified on store closings on Sept. 28th
  • The owners had not consistently paid vendors for the last 8 months – inconsistent deliveries were being experienced at every store. Trouble doesn’t go away – it has to be addressed by Management and Employees – realistic solutions have to be implemented to correct the issues. In this case, both Treasure Island Management (Christ & Maria) and the Vendors are guilty of perpetuating this situation. Simply stated – it takes two folks to dance and “It Starts and Ends With Management”.
  • Produce Wholesaler – Anthony Mareno Co. filed a suit against the assets to the tune of $453M worth of fresh Produce delivered since July 1st.
  • The United Food and Commercial Workers International filed a suit on Oct 4th alleging that Treasure Island violated Illinois law by failing to provide 60 days notice of closures and impending layoffs.
  • All Treasure Island Operations were temporarily unable to sell alcohol, but that directive was cancelled due to spokesman for State of Illinois Liquor Council Commission indicating that no liquor licenses were revoked. Also, no liens for business taxes were evident in searchable Data Bases.
  • Vendors owed outstanding balances:
    • Coca Cola
    • Pepsi
    • Frito Lay
    • Dutch Farms
    • American Wholesale Grocers
  • Most important question – where have the employees been in facing Management with the following two situations:
    • Three weeks without any deliveries – why? Those three weeks would have given them some time to somewhat prepare for what was coming on Sept. 28th.
    • Christ lied to Employees, when last year, he indicated that he had signed a lease for a 30M sq. feet of space in Uptown for another store. The store was going to compete with Mariano’s and Whole Foods with a new and innovative approach utilizing in-store cocktails and a butcher who would peel and slice vegetables for the Customer. Innovative??? Plans for the new Uptown store fell apart. Christ informed the employees at the Lincoln Park store last fall that would not be affected by a possible closing of the store due to being transferred to other stores. Christ already had in mind store closings and not paying Vendors. The banks also knew of the problems at Treasure Island for they would would not provide any money for the new Uptown store. One Lie begets another etc. etc.
  • As for Christ and Maria:
    We sincerely wish you a decent life, if this situation was a result of poor management by both of you. However, if this was not the case, then we hope each of you suffer endless court battles until every penny of your asset base is taken and returned to the employees who so loyally served you and built your fortunes. It seems strange to not have a handle of where the money went – the State of Illinois Dept. of Revenue and IRS would want to know. I would would urge you to reveal every dollar that entered and left the business since Christ became President and Maria as far back as possible since the death of her husband.
  • As for Employees, Vendors and other Creditors:
    File suits for every penny that Treasure Island owes you. It’s one thing to be lousy managers – it’s another thing to abandon the financial and operations responsibility of the business.
  • As for Illinois and Federal Tax Authorities:
    We recommend that you launch an immediate and in-depth investigation as to whether any improprieties took place.
  • The sad disaster at Treasure Island Food Stores clearly indicates that every employee should be acting as a Free Agent, and that the Employer has to understand that Employees and Customers are the most valuable assets of any business. “It Starts and Ends With Management”. Trust and Loyalty must be a two way street – Win/Win has to be a way of life – to activate an environment of mutual self – motivation.

How many Customers are extending their accounts with the intent of not paying you ever? Why not have your Credit manager provide you with a list of potential candidates for bankruptcy or business abandonment along with recommendations on how to change terms in order to increase effectiveness of terms – break-even points etc.

How many accounts are over you normal receivables terms? I recently consulted a business that had 2/10/30 receivable terms with a long list of Customers foregoing the incentive portion. What would happen if terms were changed? Is this an area in which you can gain a competitive advantage?