How Can I Improve My Business’s Collection Of Its Accounts Receivable & Business Debt?
By: Larry E. Bray, Esq.
For any business to succeed it has to be paid timely. If cash flow does not allow your vendors to be paid timely, problems can snowball. Many of my business clients come to seek help only after they are in trouble. The problem isn’t insufficient revenue, — it is cash flow timing. This article briefly reviews some legal aspects of credit and collections, including credit checking, collection letters and lawsuits.
Carefully crafted credit and collection policies improve collections. These policies should cover the use of credit applications, billing, collection letters and making collection phone calls. Your lawyer can help your company create credit and collections policies that will expedite the collection of receivables. It is important to note that state and federal debtor protection laws must be complied with to avoid vexing law suits by the debtor.
First, create a well thought-out credit application. This should contain customer information which can help the collection of a debt; i.e. the precise name, address, tax I.D., and phone number of the customer [be sure to be accurate with company names, — Is it a corporation, LLC, partnership, LLP or sole proprietorship? If the name is a fictitious name, i.e. “Joe’s Cleaners”, get the legal owner of that name, an individual or business entity. If the customer is a corporation or other entity, it is good to know who the principals are. Always get credit references and try to get a personal guarantee from a principal of the customer entity. Finally, try to get interest if payments are late and attorney’s fees if incurred.
When payment is late most businesses send an appropriate letter which demands immediate payment but does not offend the customer. If that is ignored, a follow up call should be made. A lawyer with collection law expertise can help you craft your letters and script your calls to encourage payment while not violating consumer protection laws.
If your company can’t collect, your lawyer can send a demand letter on legal stationery demanding payment and warning legal action. If the customer knows you will exercise your legal rights you may get paid. Or you may receive an explanation of non-payment, a request for a reduction based upon a justifiable claim or the customer may simply lack the money. Your lawyer can help resolve disputes, without suit, by settling them and arranging a legally enforceable payment schedule with collateral, promissory notes, stipulations of settlement with default remedies, personal guarantees, etc.. Beware of unenforceable promises to pay.
Sometimes a law suit is the only way to collect a debt. If the customer is out of state, Florida courts may lack jurisdiction over the debtor. The matter will then need to be referred to a lawyer in that state. Seek a law firm that routinely handles commercial collections and maintains a network of attorneys throughout the country. Unless the debtor has a valid defense, the suit should result in a court judgment in your favor.
Interestingly, winning a judgment doesn’t necessarily get you paid. If the debtor doesn’t voluntarily pay the judgment, your lawyer will have to help you collect it. These procedures include recording the judgment to establish a lien on real property owned, filing a judgment lien certificate to establish a lien on personal property, locating bank accounts, vehicles, equipment, receivables and seizing them. If the customer transferred assets to avoid the debt, these transfers may be set aside and the assets sold. In appropriate cases your lawyer can “pierce the corporate veil” to hold shareholders personally liable. If a customer’s financial condition is doubtful at the outset, your attorney may suggest precautionary measures, such as taking a security interest, using collateral or retaining legal title until you have been paid in full.
Indeed, cash flow is the lifeblood of any business. So, protect yours as best you can.