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From the Desk of Attorney Don Leviton: Proven Strategies for Improving Collectibility Part 2 | Brown & Joseph

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From the Desk of Attorney Don Leviton: Proven Strategies for Improving Collectibility Part 2

“From the Desk of Don Leviton, Esq.” is a featured article from Brown & Joseph’s General Counsel, Don Leviton. June 19, 2013.

A few precautions can ease collecting on receivables. Numerous books and seminars promote various theories of collecting accounts receivable, but basic strategies are often the most effective. Many of these ideas may seem simple, but don’t be deceived by their simplicity. When a collection account ends up in an attorney’s office, I find many clients failed to take the following precautions.

Establishing a written credit policy. Most companies do not have a written credit policy and those that do fail to adhere to the policy on a consistent basis.

Getting to know their customer. While this appears to be a simple and basic element of any relationship, many clients do not know who their customer is. By that, I mean, is your customer an individual, a proprietorship, a partnership, or a corporation.? In our business world, many entities use fictitious names and acronyms for their businesses. It is important to clearly establish who is responsible for the obligation. This can become especially confusing when you are dealing with partnerships.

Planning for the worst. Many clients fail to plan for problems before they happen and therefore, they fail to include necessary provisions for dealing with problems which may arise in the future. Planning for an account to be past due or planning for litigation is essential. Typically, most clients have a discount for early payment but fail to include provisions for attorney’s fees, interest or late charges for a delinquent account. Delineating these provisions before an account becomes past due ensures that there are no misunderstandings later.

Utilize personal guarantees when appropriate. Many new and unknown companies that do not have a credit history will attempt to avoid personal liability by establishing a corporate account. While the laws providing for corporate liability were clearly intended to shield corporate shareholders, directors and officers from personal liability, many new or unknown companies do not have the credit worthiness to avoid personally guaranteeing their obligations. It is critical that a personal guarantee be obtained, especially for new and unknown corporations or partnerships.

Securing an agreement for payment of attorney’s fees and interest. In order to recover attorney’s fees, most courts require a written agreement signed by an authorized representative of the customer. As with other terms of a credit relationship, it is imperative that an agreement be obtained before the relationship has deteriorated. Also, include a provision allowing you to recover interest at the highest allowable rate. Without such a provision, you may be limited to the statutory rate which in most instances can be significantly less than the highest allowable rate. More Proven Strategies for Improving Collectability coming in future issues.
This information is provided as a matter of information and education only. It is not intended to provide legal advice or counsel. Do not take action in specific cases without full knowledge of the facts, and competent legal advice from celebrity gossip your attorney.