“People do not win people fights. Lawyers do.”
-Norman Ralph Augustine
Customer owes you money and is ignoring your demands?
Getting you the money you’re owed is about more than just filing a lawsuit. Your lawyer needs to know when to negotiate, and when to file suit and get you a judgment.
The best way to avoid collections issues is to avoid taking on risk in the first place. But for most businesses, that simply isn’t an option. [ask LEGAL] can help you limit that risk in a variety of ways. Here are ten proactive measures to take before extending credit that will increase the likelihood your customers will pay you back:
- Gather relevant information (e.g., federal tax ID/social security numbers, drivers license numbers, date of birth, banking information with account and routing numbers, and Dun & Bradstreet number, if available) before credit is extended. The time to ask for this information is not when the customer is already in default.
- Make sure there is a signed credit agreement. Most contracts don’t have to be in writing to be legally enforceable. But having a written agreement makes proving the contract a lot easier, and is beneficial in many ways.
- Make sure that your written contract properly identifies the party or parties to whom credit is extended. This means identifying not only the name under which the debtor does business, but its formal legal name, as well.
- Include a reasonable attorneys’ fees provision. This does have to be in writing, and the amount to which you are entitled depends on what kind of contract it is. Likewise, there are reasons for and against making such a provision mutual (loser pays) or one-sided (you’re entitled to your fees, but they’re not entitled to theirs). Make the choice intentionally.
- Include a venue clause. If litigation becomes necessary, it’s best to have some control over where you are permitted to bring the lawsuit. For a variety of reasons (mostly related to consumer protection law compliance issues), you will often end up suing where your debtor lives, but it is good to have some control.
- Include a choice of law clause. It’s nice to know which state’s laws apply to your contract. A term that may be legal in one state may be unenforceable in another. If it’s part of your agreement, you can increase the likelihood of having a court actually apply the law you thought applied.
- Ask for guarantees. It’s always better to have more people to look to if the bills aren’t paid. Note, however, that guarantees do have to be in writing and signed, and that there are rules about when you are allowed to insist on having a guarantor.
- Keep a clean copy of all agreements. It doesn’t have to be an original (though that is preferable), but it does need to be legible. In today’s world of cheap scanners and electronic storage, there is no reason not to have complete and legible file copies of all important documents.
- Update credit agreements periodically. It’s not enough to draft your agreement and forget it. Laws change, as do your business and industry. Make sure that your agreement continues to give you the protection you want.
- Have a system in place for when customers don’t pay. Don’t deal with bad debt on an ad hoc basis. Know what steps your business takes at every stage. Have a plan of action for thirty, sixty, and ninety days past-due. For instance, you might want to make a call at thirty days, send a demand letter at sixty days, and refer to counsel at ninety days. The point is to have a plan before the issue arises. And remember, the sooner you take action, the higher your chances of getting paid—as debt ages, people become less likely ever to pay it.
But what if it’s too late, and you already have customers with past-due receivables? In most situations, creditors are best served by negotiating. If your debtor is willing to work something out, you should consider it—even if that means compromising your claim. The time and expense of litigating a collections matter means that in most cases your company’s best option is to negotiate.
But if you can’t negotiate, whether because the debtor refuses or because you’ve tried and can’t agree on a deal, litigation can become necessary. In that event, you’ll need a trial lawyer. Collections cases can range from the very simple, in which everyone acknowledges the debt owed, to the very complex, in which there are questions about what terms or interest apply to the debt, or whether a debt is owed at all. In a simple collections case (assuming we can locate the debtor for service), we can often obtain a judgment within a few months. A more complex case could easily take over a year.
It is important to realize, however, that in most collections cases getting a judgment is just the beginning of the work. Even after you have a judgment, you need someone who knows how to locate assets and utilize post-judgment enforcement laws to actually get you paid. And you need someone who can do all of that on a cost-effective basis that make sense for you and your business.
At [ask LEGAL], we regularly pursue payments on judgments, utilizing a variety of post-judgment enforcement laws. For instance, under N.C. Gen. Stat. § 1-352.1, we can issue written questions to a debtor about its assets, which the debtor is required to answer. Or, pursuant to N.C. Gen. Stat. § 1-359, 1-360, and 1-360.1, we might identify who owes your debtor money, and pursue them on the debt. And because we offer alternative fee arrangements, we can do this on a cost-effective basis for our clients.
[ask LEGAL] will handle your collections, from demand letter to post-judgment enforcement. Contact us for details.