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Clients
frequently ask: How do I minimize my outstanding
accounts receivable and maximize collections before
placing the matter with a debt recovery professional?
Here are a few suggestions:
Establish
a written credit policy with your customers.
Implement
a policy and use it for every account, all the time.
Know
your customers.
Do you
know if your client is a corporation, Limited Liability
Company or simply a sole proprietor using a trading
name? It is not uncommon for corporations to use trading
names instead of their corporate names. It is important
to clearly establish who is responsible for the
obligation especially when litigation and forced
collection becomes necessary.
If you do not properly identify your customer, it
may cause difficulty in collecting a judgment later on.
Minimize
your expenses and maximize your potential recovery.
Clients should assume that even their best customers can
or will fall upon hard times. It happens every day in
business. You must recognize and plan for these
contingencies.
Here
are a few simple suggestions:
1.
Credit Application/Agreement. Have your clients complete
and sign a credit agreement which includes:
Provisions
for interest on late payments;
Securing
an agreement for the payment of attorney's
fees and costs of collection;
A
personal guarantee for all credit extended, when
appropriate.
At a
minimum, all of the items listed above should be
contained within your credit application. If not, you
should have it reviewed by an attorney knowledgeable in
this field.
1.
Using forbearance agreements and security agreements
when appropriate.
Often
Security Agreements can be utilized to create a lien on
the equipment or merchandise sold to protect you in the
event of a default. If an account is already delinquent,
forbearance and security agreements can be structured to
re-establish credit with your customers to help
them continue to pay you by staying in business as well
as provide for a liquidation schedule for payment of
that debt. By convincing a client in default to execute
these types of agreements can help minimize the "manufactured"
defenses which often arise when litigation is
unavoidable.
2.
Document and maintain a file on each client. It is not
uncommon for customers to send letters inadvertently
admitting liability on an account. This is perhaps one
of the best ways to forestall the "manufactured"
defenses which desperate people create when facing a
civil summons for damages. Accordingly each statement
sent to your customers and each document or letter
exchanged should be maintained in your client file.
Fortunately with technology as it exists today, this can
be done with little cost and effort.
Any agreements or discussions had with clients on
the telephone concerning a particular subject should be
documented with a confirming letter or email and/or memo
to the file when appropriate.
3.
Always remember: "The
squeaky wheel gets the grease."
If
a customer falls behind, press them for an explanation.
If you can't
get a straight answer with a commitment to address the
delinquency, you should consider moving forward with
legal action. Moving forward promptly can help maximize
your prospects for recovery, especially when your
customer first begins to struggle meet their
obligations. Irrespective of the nature of your
relationship, a customer who avoids communication is
most assuredly attempting to avoid his obligation to
you. Don't
fall victim to the customer who continually promises and
consistently fails to fulfill his obligations.
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