Sarah, a dedicated fundraiser, approached Mr. Schneidman to pay his pledge from the previous year to support their local nonprofit.
“Mr. Schneidman, I was just calling about redeeming your pledge from last year.” Mr. Schneidman scratched his head and replied, “You know, Sarah, I’d love to help, but last year I also made a pledge to start exercising more. Turns out, my exercise bike cost more than I anticipated and now my wallet’s on a permanent diet!”
Sarah laughed. “Well, Mr. Schneidman, maybe you could consider an ‘exercise’ in generosity this year instead!”
I know, I know. Lame joke. But the real question is this: What could Sarah, or her nonprofit, have done to prevent this delinquent pledge or others like it?
Preventive measures should always be in place to handle such eventualities. As an example, look at a blog post by the For Purpose Law Group (FPLGLaw.com), entitled, “What If a Donor Threatens to Renege on a Pledge?” In a July 26, 2023, column in The Jewish Link, I addressed the matter of how to follow up on delinquent or past due pledges. Explained in that essay are also various reasons leading to delinquency and their ignominious consequences. Here, I want to speak more about preemptive steps to take to avoid, or minimize, bad debts from accumulating on the balance sheet.
Overdue pledges aren’t a hypothetical problem. The best nonprofits are prone to them. They range from small donations to major gifts exceeding millions of dollars. The FPLG article above describes such occurrences. In one instance, a sports team owner pledged $30 million to Technion—Israel Institute of Technology. The donor reneged on all but seven million dollars because “he was dissatisfied with the progress of the business school program that he had funded,” albeit he restored some of the funding later.
In another case, a wealthy benefactor pledged $25 million to Stanford University. He paid $22.5 million of the pledge. But then he held up the balance because he objected to a partnership between the school and Exxon Mobil worth roughly $100 million over ten years. At risk were future contributions by this donor and his family. Stanford’s endowment saved the day and “enabled the university to stand firm in the face of the donor’s threat.”
An investigative story in Nonprofit Quarterly by Ruth McCambridge in March 2015 described a situation in which the Royal Ontario Museum (ROM) had trouble collecting approximately $23 million in pledges made to its capital campaign completed five years earlier. This is despite ROM publicly recognizing and celebrating the donors. One of the biggest unpaid pledges came from a food industry mogul who said, “When we pay, we pay.” That offered little comfort to the accounting department and auditors. The museum has since revised its pledge policies in view of its economic setbacks.
In a September 23, 2019 article titled “Bad Debt,” for the Nonprofit Accounting Academy, Carol Carrie wrote, “Once we had a client with about $50,000 in pledges receivables on the books. We kept asking the executive director if she thought the pledges were good because they had not received a payment on most of them for a long time. ‘Oh, those pledges are good. We are calling the donors. We don’t need to write any off,’ she assured us. In the end, we had to write off nearly all the pledges.”
Stories like these have littered the fiscal landscape of many organizations over the years. Remember, too, that a pledge made in year one but written off in year two wreaks havoc on income in both years. A negative profit-and-loss statement caused by bad debt expenses is a nightmare for everyone. So, what do you do?
Careful planning is necessary to lessen delinquent pledge pain. Taking the right actions can help you reduce your potential liabilities. Here are just a few measures described by Eric Bloom on March 21 in Fund Hero that nonprofits can take to deter them and reduce the harm they do:
- Set Firm Deadlines: If donors know exactly when they need to pay, they’re far more likely to fulfill their pledges on time.
- “Ask for Hard Pledges: Soft pledges (pledges without a specific amount) are far more likely to fall into past-due status than hard pledges (asking them to give a certain amount) — the firmer the pledge, the more likely the donation will match it.”
- “Quick Confirmation: After a pledge is made, communicate directly with your donors — this can be a thank you email, letter, or text confirming the pledge and due date. In fact, experts say that pledges not followed up within 72 hours are significantly less likely to turn into donations.”
- “Thorough Follow Up: Before the deadline is up, reach out to your donors at least once — additional thank you’s and gentle reminders go a long way. Additionally, when following up, reinforce the impact the donor will have with their gift.”
For major gifts, a signed pledge card or memo of understanding goes a long way and averts misunderstandings between donor and institution. However, taking on new pledges from donors with spotty records of delivering on their promises is asking for trouble. No matter what, be prepared to accept the possibility that some gifts will disappear into thin air. It is, unfortunately, a cost of doing business.
Norman B. Gildin is the author of the popular book on nonprofit fundraising “Learn From My Experiences.” He is the president of Strategic Fundraising Group, whose singular mission is to assist nonprofits to raise critical funds for their organization.
His website is www.normangildin.com.
