Tag Archives: collections

How to collect a past-due debt from a client

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I received this question by email: 

A business owes my business money for products that we sold.  How do we collect our money and how do we find out if the business is closing? 

This is my answer:  You have a couple of avenues to collect a past-due debt.  You can try letters, phone calls, emails.  You can hire an outside agency to collect on your behalf.  You can sell the debt to another agency.  You can hire an attorney to collect on your behalf.  You can report the debt to the three credit reporting agencies (there is a fee involved).  You can always sue them in court.  Once you have a judgment, you have more options to collect your judgment such as seizing bank accounts and assets.  In addition, judgments are reported to credit reporting agencies for free.  Finally, if the judgment is large enough, the law permits you to force your client into bankruptcy.  

The best way to determine if a business is closing is to search the bankruptcy filings.  You can search all federal dockets through PACER (Register here http://pacer.psc.uscourts.gov/).  In addition, you can search the Department of State‘s business register.  All businesses (except solo proprietors) are required to register with the Department of State prior to conducting any business in the state.  Those same businesses are required to notify the state if they are dissolving.  (Visit http://dos.state.pa.us to search the business filings.) 

If the business is a corporation, it is required to run a public notice in the newspaper that it is dissolving. Most newspapers offer an online version of its public notices.  The newspapers in Pennsylvania have reportedly collaborated to form http://pa.mypublicnotices.com  You can search this site for any public notices about your client.

Do you have a legal question? Send your question to us at http://wp.me/PN9wo-gz 

Good luck.

Sharmil McKee |  Business Lawyer | blog@mckeeoffice.com

Collections Checklist: How to collect past-due accounts

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While having a small accounts-receivable balance indicates good financial management, (around 1.5% to 2.5% of your gross income), collecting past-due balances is a displeasing aspects of business. Studies show that 75% of receivables that are 3 months delinquent are paid. However, this number drops to 56% after 6 months. Therefore your delay in collecting past-due accounts will reduce your chance of receiving payment. This checklist should help you reduce the stress of collecting past-due accounts:

  • For example, offer a 2% discounts for accounts paid within 10 days rather than 30 day.
  • Encourage customers to pay sooner by offering discounts for early payments. Most clients pay their bills and will pay if they have the funds.
  • After 30 days of no payment, add a service charge. Contact your attorney to ensure that you do not exceed your state’s usury statutes and federal law.

Step one:

Make a personal visit to the customer to discuss past-due accounts. Remember, that you value the client-relationship. Call your customer when personal visits are not possible. Appeal to your customer’s business sense while respecting the valuable client relationship. For example, try “I’m the smallest of the smallest. I can’t play the role of bank because I am so small.” When you talk with your customer, offer some solutions. Give your client a way out of this uncomfortable situation.

Step two:

Play “good cop/bad cop”. Ask your secretary or partner to call on your behalf. Ideally, the client will be so grateful to talk to you, the “good cop”, that he/she will settle the account so they will not have to talk with the “bad cop”. This allows you to maintain the client relationship, while collecting your account.

Step three:

Send a series of reminder letters. The first letter should include the following statements:

  • concern that your valued client has allowed his/her account to lapse
  • acknowledge your goal of providing high-quality services
  • you are aware of his/her delinquent account status
  • contact you promptly or his/her credit status is in jeopardy (include your contact information)
  • the total amount due
  • pay this amount to avoid sending the account to a collection attorney. Say, “we regret having to take this action, but must do so”
  • Thank you in advance for settling this matter



Your subsequent letters should include several choice boxes:

  • I am sending a check on _________
  • This is part of the bill to show good faith
  • Here’s the whole amount; now stop calling me



Step four:

File suit in small claims court. In Philadelphia, the maximum amount allowed for small claims is $10,000. Corporations and associations with less than a $2500 claim do not need an attorney to represent them in small claims court. If the past-due amount is more than allowed by the small claims court, then contact your attorney to file a lawsuit to collect the account.

Follow these steps and you should be able to collect your past-due accounts while preserving your customer relationship.

Sharmil McKee | Business Lawyer | blog@mckeeoffice.com

　
 
 
 
 
 
 

 

Collecting A Debt from a Contractor

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Today a business owner asked me “what are my remedies when a contractor will not pay for my invoice for my final week of work?”. This was my response:

If you are a subcontractor working on a property, you can lodge a mechanic’s lien against the property. First you must send a written, signed letter demanding payment with a deadline for the contractor to comply. If he/she doesn’t pay, then file a lien. A lien is just a mark on the property’s title. It doesn’t guarantee payment. However, it does place pressure on the property owner to settle your dispute to keep the title clear.

You can on the other hand, sue the contractor. If you are in Philly and your claim is under $10,000, you can sue in small claims court. The result will be a judgment in your favor. A judgment doesn’t guarantee payment, either. It’s just a document declaring that the contractor legally owes you money. However, with a judgment you can garnish money from the contractor’s bank account, if he/she has a bank account.

If you suspect that your contractor has run out of money, then the new bankruptcy laws allow you force a business into bankruptcy. It’s very complicated process, but a serious option if your contractor owes you a large sum of money.

If you are fortunate enough to be working on a government contract, the contractor was required to post a bond to qualify for the contract. A bond is like an insurance policy. File a claim for payment with the contractor’s bonding company.

My business advice to you would be to speak with an attorney about the details of your situation and map out a cost-effective, yet realistic plan to get your money.

Sharmil McKee | Business Lawyer | blog@mckeeoffice.com