Taking a few safeguards can improve your success when collecting on your receivables.
The debt collection experts at Brown & Joseph have found that basic strategies are usually the most effective for improving collection rates.
In order to increase the effectiveness of your collection process, follow these basic guidelines:
- Have a written credit policy and follow it on a consistent basis.
- Know your customer. Is your customer an individual, a sole proprietor, a partnership, or a corporation? Businesses often use fictitious names and acronyms for their businesses. It is important to clearly establish who is responsible for the obligation.
- Plan for collection problems before they happen. Your credit agreement or application should provide for provisions for attorney’s fees, interest at the highest rate allowable and late charges for a delinquent account. In order to recover attorney’s fees, most courts require a written agreement signed by an authorized representative of the customer.
- Use personal guarantees, especially when you are dealing with new companies that do not have a credit history and will try to escape personal liability by creating a corporate account.
- Have a detailed credit application. All of the above and more should be contained in a comprehensive credit application
- Obtain a security agreement that can be used to create a lien on the equipment or merchandise sold to protect you in the event of a default or bankruptcy filing.
- Keep all correspondence between you and your customer. Letters or emails received from your customers may admit the liability in question. Phone conversations should be followed up with a letter or email confirming the conversation.
A letter or email received from your customer that you do not agree with should be responded to delineating the reasons for the dispute.
Most importantly, once an account is in dispute and the customer has defaulted you must act quickly. The age of the account will be one of the main factors that will impact your ability to be able to collect.
Statistics show that 90 days after the account is past due, you have less than a 75% chance of collecting it. The percentage quickly shrinks every passing month and after 12 months, there is only a 25% possibility of collection.
It is essential that accounts are closely monitored during the first three months of aging and an evaluation is made without delay whether an account should be sent out for collection.
Almost always, debtors will ask and creditors will afford a debtor a final opportunity to remit, hopeful that payment will be received the next day, or next week, or next month. This tactic is used by all debtors. Your most effective tool is acting promptly.
The strategies discussed above will assist you in managing your accounts receivable and provide for increased collection rates if and when the account is sent out for collection.
Information in this article 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 the full knowledge of the facts, and competent legal advice from your attorney.
About the Author
Don Leviton graduated in 1979 from Arizona State University with a B.S., majoring in accounting and earning a Juris Doctor in 1982 from The John Marshall Law School. Don has been admitted to the Illinois State Bar since 1982 and the District of Columbia. He has extensive experience representing the rights of creditors and insurance companies. Don treats his clients’ outstanding accounts and claims as his own and believes throwing good money after bad makes no sense. His collection methods are proven effective. He tries to resolve these matters amicably at first, so that his clients may retain important relationships with their clients.
In addition to his collection practice, Don has been in-house legal counsel for a start-up litigation loan financing company, where Don was responsible for creating and implementing policies and procedures, providing legal advice to management, handling and advising on routine legal issues, transactional, compliance and corporate governance matters, underwriting and monitoring outstanding loans, and legal collection of defaulted loans. Don has also served as in-house legal counsel for a collection agency where his responsibilities included drafting collection letters, settlement workouts, litigation, and supervised and taught employees compliance under the Fair Debt Collection Practices Act.
Don’s law practice and his positions as in-house counsel have given him exposure to a wide range of problems in large and small companies from the perspective of both lawyer and management. Don has served for many years as an arbitrator for the Circuit Court of Cook County Mandatory Arbitration program and was chair-qualified with the authority to administer oaths, rule on the admissibility of evidence, and decide questions of fact and law in order to reach an award in a case.
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