The best way to avoid debt collection problems is to address delinquent accounts early, firmly and aggressively. The following tips should help you avoid the most common collection problems.
1. Keep photocopies of checks. Perhaps the single most important tip you can remember to help collect on deliquent accounts is to make photocopies of checks used by customers in payment on any invoice or bill. If you cannot feasibly keep copies of the checks, you should do it for all new customers, and then verify that this information is still accurate when subsequent payments come in.
Bank information (as well as other asset information) is crucial to enforcement of judgments. This small investment of time, to record information which is in your hands for only a short period of time, can pay great dividends later. If you are trying to perform a bank garnishment in California, you need to tell the levying officer (usually the County Sheriff) the exact branch where the account is held in order to complete the levy.
2. Turn over delinquent accounts for outside collection quickly - after the first broken promise or refused or unreturned telephone call. There is a significant drop-off in the collectability of accounts after 90 days past due, and then again after 180 days . While it is true that turning over your accounts comes at the expense of a fee, you should view this step as a necessary one, where you hire experienced professionals to do something for you, in order that you may spend your valuable time and resources on more profitable customers. Not only are successful collections like "found money," they also serve as a message that your business is not an "easy mark," and will hopefully deter future delinquencies, not only from the customer in question, but also from all of your current and prospective customers.
Also, there are practical concerns about being able to successfully document and prove a collection case after significant time has elapsed (i.e., your staff may change, your record- keeping may call for the purging of accounts, the customer could relocate). Most important of all, the statute of limitations may bar a collection action after the passage of too much time from the date of breach of the contract.
3. Always credit customers’ payments to their oldest invoice or bill (unless they specify otherwise in writing).
This goes directly to the statute of limitations issue. Let’s assume that you have a relationship with customer which goes back over ten years, and that this customer was never current in payment, yet made consistent late payments so that the size of the past due balance remained relatively constant, on average, through time. If you credit payments to the newest invoices, you will have a delinquency which is over ten years old, and thus, time-barred by the statute of limitations. If, however, you credit payments to the oldest invoices, you will technically have a zero balance (even after adding finance charges on a monthly basis) as of approximately the date where the total of most recent purchases, when added together from most recent to oldest, equals the total balance due. This will invariably produce a more recent date for the start of the delinquency, which is to your advantage.
4. Get delinquent customers’ promises to pay in writing.
If your customer promises now to pay at some point in the future, this can only be viewed as an attempt to "buy time." While it may be true that your customer does not have the money at this time, use this situation to your advantage, by agreeing to wait a short time (no more than 30 days), but only if the customer puts this promise to pay in writing. Remember, each stage of conducting business consists of exchanging something of value; when a customer becomes delinquent, this temporarily upsets that balance of exchange. In order to avoid being at the mercy of this customer, you should set out to continue the "give and take," rather than pleading for payment. Remember, you can always say "enough is enough" and file suit - you are doing your customer a favor by not doing so, and you should be rewarded with a favor in exchange.
5. Consider sending a survey to customers after you have completed your work, but before payment is due.
First of all, this is good customer service. You may want to include a business reply envelope, and perhaps even offer a gift certificate on the customer’s next purchase in exchange for sending back a contemplated survey. This survey is especially useful for the first-time customers, or existing customers who suddenly purchase a "big ticket" item. Beyond the customer service aspect, you will learn early on if there are any perceived problems from the customer’s point of view, and you may be able to utilize a favorable survey or even lack of a response as evidence of customer satisfaction if a dispute occurs later.
The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified legal advice or other professional help. Please contact us at (619) 448-2129 or e-mail us for a consultation.
About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.
1. Keep photocopies of checks. Perhaps the single most important tip you can remember to help collect on deliquent accounts is to make photocopies of checks used by customers in payment on any invoice or bill. If you cannot feasibly keep copies of the checks, you should do it for all new customers, and then verify that this information is still accurate when subsequent payments come in.
Bank information (as well as other asset information) is crucial to enforcement of judgments. This small investment of time, to record information which is in your hands for only a short period of time, can pay great dividends later. If you are trying to perform a bank garnishment in California, you need to tell the levying officer (usually the County Sheriff) the exact branch where the account is held in order to complete the levy.
2. Turn over delinquent accounts for outside collection quickly - after the first broken promise or refused or unreturned telephone call. There is a significant drop-off in the collectability of accounts after 90 days past due, and then again after 180 days . While it is true that turning over your accounts comes at the expense of a fee, you should view this step as a necessary one, where you hire experienced professionals to do something for you, in order that you may spend your valuable time and resources on more profitable customers. Not only are successful collections like "found money," they also serve as a message that your business is not an "easy mark," and will hopefully deter future delinquencies, not only from the customer in question, but also from all of your current and prospective customers.
Also, there are practical concerns about being able to successfully document and prove a collection case after significant time has elapsed (i.e., your staff may change, your record- keeping may call for the purging of accounts, the customer could relocate). Most important of all, the statute of limitations may bar a collection action after the passage of too much time from the date of breach of the contract.
3. Always credit customers’ payments to their oldest invoice or bill (unless they specify otherwise in writing).
This goes directly to the statute of limitations issue. Let’s assume that you have a relationship with customer which goes back over ten years, and that this customer was never current in payment, yet made consistent late payments so that the size of the past due balance remained relatively constant, on average, through time. If you credit payments to the newest invoices, you will have a delinquency which is over ten years old, and thus, time-barred by the statute of limitations. If, however, you credit payments to the oldest invoices, you will technically have a zero balance (even after adding finance charges on a monthly basis) as of approximately the date where the total of most recent purchases, when added together from most recent to oldest, equals the total balance due. This will invariably produce a more recent date for the start of the delinquency, which is to your advantage.
4. Get delinquent customers’ promises to pay in writing.
If your customer promises now to pay at some point in the future, this can only be viewed as an attempt to "buy time." While it may be true that your customer does not have the money at this time, use this situation to your advantage, by agreeing to wait a short time (no more than 30 days), but only if the customer puts this promise to pay in writing. Remember, each stage of conducting business consists of exchanging something of value; when a customer becomes delinquent, this temporarily upsets that balance of exchange. In order to avoid being at the mercy of this customer, you should set out to continue the "give and take," rather than pleading for payment. Remember, you can always say "enough is enough" and file suit - you are doing your customer a favor by not doing so, and you should be rewarded with a favor in exchange.
5. Consider sending a survey to customers after you have completed your work, but before payment is due.
First of all, this is good customer service. You may want to include a business reply envelope, and perhaps even offer a gift certificate on the customer’s next purchase in exchange for sending back a contemplated survey. This survey is especially useful for the first-time customers, or existing customers who suddenly purchase a "big ticket" item. Beyond the customer service aspect, you will learn early on if there are any perceived problems from the customer’s point of view, and you may be able to utilize a favorable survey or even lack of a response as evidence of customer satisfaction if a dispute occurs later.
The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified legal advice or other professional help. Please contact us at (619) 448-2129 or e-mail us for a consultation.
About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.
2 comments:
Many institutions limit access to their online information. Making this information available will be an asset to all.
truly needed tips for the people who work on it
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