Collections

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 [...]

No matter how cautious you are in extending credit to your customers, in the end, the quality and contents of your credit application often determine how successful you will be in collecting your accounts. In fact, a good credit application can improve your chances of recovery before and after litigation. But what makes a credit application good? And are those elements present in your company's application? Get one out and let's see. Does Your Credit Application ... Clearly identify your customer? Before you extend credit, be sure you know who - or what - you're dealing with. Is the customer an individual, a proprietorship, a partnership, or a corporation? It's important to clearly establish who's liable for the obligation. Include credit terms that make provisions for attorney's fees, late charges, and interest at the highest allowable rate by law? Without such provisions in writing, you may not be able to recover them in the event of litigation Establish in specific terms when payment is due? For example, net (30) thirty days or COD. Leave no questions as to when payment is due. Force the debtor to defend any lawsuits on your home court? With this provision, your collection cases will be heard by a local judge or jury, in the locale where your company does business, saving you travel time and money. Include a personal guarantee? Many new and unknown companies without proven credit records will attempt to avoid personal liability by establishing a corporate account. This is OK, but it's critical that you also get a personal guarantee. Contact us for a free sample credit application