On Tuesday, May 3rd of 2011 I posted a blog discussion on MERS, the mortgagee created to quickly file mortgages, but not the holder of the note (the debt). The discussion was to the effect that the Court of Appeals held the mortgage foreclosures by advertisement had to stop and that there were serious issues to be dealt with because the note holder and mortgage holder were different entities.
Well, getting right to the bottom line, and not getting caught up in the many technicalities on this whole issue, the Michigan Supreme Court has now ruled that the Court of Appeals was wrong. So, we are back to business as usual here in Michigan in terms of foreclosures, and there apparently is no legal problem with the MERS filing system and the mortgage foreclosures....I suppose good news for the banks and perhaps bad news for the home owners.
If you are a legal beagle and want to read more about the case, check out or Google Saurman at 805 NW2nd (that's Northwestern Reporter, 2nd) at page 183.
Steve Harms
Monday, January 30, 2012
Tuesday, January 24, 2012
Collecting Money: Avoiding Stall Tactics
Debtors (people or companies which owe money to creditors) love to stall payment, anyway they can! The more they stall, the longer they can hold on to their money, or, the longer they can use YOUR money to pay for other things.
One strategy to avoid the stall tactic is to try to find out what portion of the debt is allegedly disputed (the stall tactic). Then, get the debtor to pay the undisputed portion of the claim. Your logic to the debtor is simple: “show your good faith to our client by paying the undisputed portion of this account, that way our client will take your claims/objections more seriously and we can actually resolve them”.
Keep in mind that the debtor wants to make the matter as complicated as possible. This is an excellent stall tactic used to confuse many debt collectors. If the debtor can convince the collector that this is a complicated, fuzzy, hugely disputed matter, the creditor is more likely to let the debtor get away with a stall. The collector might even let the debtor go an additional 30 or 45 days after the last communication, not wanting to deal with these stalling tactics!
Again, make the file as clear as possible by defining the undisputed portion, and then focusing in on the actual issues as to the disputed portion of the claim including information such as the invoice numbers, or the description of the goods which are disputed.
Once you know exactly what is in dispute, obtain the necessary documents to "prove" your case (invoices and the like).
Documents will include invoices and delivery receipts but also call notes made by in-house credit people, scraps of paper written in handwriting, e-mails, faxes, etc. Obviously, if you can find a piece of paper where the debtor admitted that they were going to pay all or even a portion of the account, you have struck gold! The best clients for collection attorneys like me are those clients who keep things in writing, particularly when an account is disputed.
A good credit manager, even on a disputed account, would write something to the debtor like “per our conversation today, we agreed to work on invoice #123 for $1,000.00 but you agreed, in the meanwhile, to pay off the remaining balance of $1,500.00 on the other invoices which are not disputed”. Obviously, a document like that is a piece of gold to you and to your attorney if the case actually goes on to be sued. Any written admission of the debt is a very, very substantial piece of evidence in your favor!!
If the case does go on to suit, please note that all documents should be sent onto the attorney particularly “key” documents such as personal guarantees, contracts, credit applications, invoices, delivery receipts and related documents. Yes, even a credit application is extremely important. It can tell you and the attorney where the debtor banks and other very helpful information. Sometimes there is a question that you might not even anticipate such as what the legal composition of the debtor is. The credit application should clear that up.
One strategy to avoid the stall tactic is to try to find out what portion of the debt is allegedly disputed (the stall tactic). Then, get the debtor to pay the undisputed portion of the claim. Your logic to the debtor is simple: “show your good faith to our client by paying the undisputed portion of this account, that way our client will take your claims/objections more seriously and we can actually resolve them”.
Keep in mind that the debtor wants to make the matter as complicated as possible. This is an excellent stall tactic used to confuse many debt collectors. If the debtor can convince the collector that this is a complicated, fuzzy, hugely disputed matter, the creditor is more likely to let the debtor get away with a stall. The collector might even let the debtor go an additional 30 or 45 days after the last communication, not wanting to deal with these stalling tactics!
Again, make the file as clear as possible by defining the undisputed portion, and then focusing in on the actual issues as to the disputed portion of the claim including information such as the invoice numbers, or the description of the goods which are disputed.
Once you know exactly what is in dispute, obtain the necessary documents to "prove" your case (invoices and the like).
Documents will include invoices and delivery receipts but also call notes made by in-house credit people, scraps of paper written in handwriting, e-mails, faxes, etc. Obviously, if you can find a piece of paper where the debtor admitted that they were going to pay all or even a portion of the account, you have struck gold! The best clients for collection attorneys like me are those clients who keep things in writing, particularly when an account is disputed.
A good credit manager, even on a disputed account, would write something to the debtor like “per our conversation today, we agreed to work on invoice #123 for $1,000.00 but you agreed, in the meanwhile, to pay off the remaining balance of $1,500.00 on the other invoices which are not disputed”. Obviously, a document like that is a piece of gold to you and to your attorney if the case actually goes on to be sued. Any written admission of the debt is a very, very substantial piece of evidence in your favor!!
If the case does go on to suit, please note that all documents should be sent onto the attorney particularly “key” documents such as personal guarantees, contracts, credit applications, invoices, delivery receipts and related documents. Yes, even a credit application is extremely important. It can tell you and the attorney where the debtor banks and other very helpful information. Sometimes there is a question that you might not even anticipate such as what the legal composition of the debtor is. The credit application should clear that up.
Tuesday, December 13, 2011
Collections in difficult situations
Collections proceed forward, even in situations where the backup paperwork is a bit lacking….in other words, we live in a real world and our file is not always perfect. Do we just close the file out, even though there is a past due balance from our debtor? No, we gather what we can and proceed with collections…consider the following advice.
Gather your file, even if it is in electronic form to decide the best action to take when the debtor is challenging the account as having:
• Inaccuracies in billing practices such as double billings. Examine invoicing to determine if you are able to meet debtor’s challenges head on, or whether it is time to back down a bit and settle for less.
• Gaps in time, making your bookkeeping appear disorganized and sloppy.
• Lacking in having a contract to support the invoices.
• Lacking in any contract terms which would justify the charging of interest or late fees which appear on your invoices.
• Lacking in a purchase order matching up to the invoices.
• Inconsistencies in the statements of account from the invoices.
• Missing change orders in support of invoices for extras.
• Lacking in e-mail or other formats of replies to debtor letters or e-mails making claims of problems (written communications citing problems should have responses to avoid the appearance you ignored the problems).
Collection cases lacking in good paperwork may progress as follows:
1. Make demand on the debtor for immediate payment.
2. Listen to the debtor dispute the amount claimed.
3. Respond to debtor’s claims as best as possible while remaining vague regarding backup paperwork.
4. Should debtor persist that no payment will be made without a review of paperwork he believes you possess, reconsider your position and realize you will not prevail if you go to court with the lack of paperwork.
5. Negotiate with a new game plan: to obtain the best possible settlement.
Poker players develop a feel for when to hold ‘em and when to fold’em. Collection work can be very similar, particularly when you don’t have a good hand…you lack good backup paperwork.
See Credit and Collections Kit For Dummies for many more tips!
Gather your file, even if it is in electronic form to decide the best action to take when the debtor is challenging the account as having:
• Inaccuracies in billing practices such as double billings. Examine invoicing to determine if you are able to meet debtor’s challenges head on, or whether it is time to back down a bit and settle for less.
• Gaps in time, making your bookkeeping appear disorganized and sloppy.
• Lacking in having a contract to support the invoices.
• Lacking in any contract terms which would justify the charging of interest or late fees which appear on your invoices.
• Lacking in a purchase order matching up to the invoices.
• Inconsistencies in the statements of account from the invoices.
• Missing change orders in support of invoices for extras.
• Lacking in e-mail or other formats of replies to debtor letters or e-mails making claims of problems (written communications citing problems should have responses to avoid the appearance you ignored the problems).
Collection cases lacking in good paperwork may progress as follows:
1. Make demand on the debtor for immediate payment.
2. Listen to the debtor dispute the amount claimed.
3. Respond to debtor’s claims as best as possible while remaining vague regarding backup paperwork.
4. Should debtor persist that no payment will be made without a review of paperwork he believes you possess, reconsider your position and realize you will not prevail if you go to court with the lack of paperwork.
5. Negotiate with a new game plan: to obtain the best possible settlement.
Poker players develop a feel for when to hold ‘em and when to fold’em. Collection work can be very similar, particularly when you don’t have a good hand…you lack good backup paperwork.
See Credit and Collections Kit For Dummies for many more tips!
Monday, December 5, 2011
Collections: Does it matter who or what the debtor is?
Yes, it matters who or what the debtor is. If your debtor is an individual, you certainly want to make sure to have the correct person to pursue. For example, a city may have 20 persons named "Tom Smith"...you need to verify you have the correct one!
This applies to commercial collections as well, as the debtor is a legal entity, and it must be identified.
Therefore, in matters of commercial claims, it is important to know what legal entity the client did business with.
Question: What is a “legal entity” and why is that concept important to me as a collector?
Answer: Legal entity is the term, which describes the business formation of a company. The most common legal entities are proprietorship, partnership, and corporation. These entities are very significant for the collector as more fully described in the question which follows this one.
A proprietorship is a simple form of business involving a single owner who has the business in his own name. An example is John Jones dba Jones Bike Shop. This form of business may not even be registered. Occasionally, you find the business is registered under the assumed name or fictitious name county filings in the county where the business is operated.
A partnership is a little bit more complicated but similar to a proprietorship with more people. The general partners are the owners, and, like a proprietorship, they are personally responsible for all debts incurred by the business. An example would be John Smith and Mary Smith dba Smith’s Bike Shop. A fictitious or assumed name certificate may be filed in the county. A certificate of a partnership may be filed in the county or even with the state in some states. Some states have lookup documents where you can lookup to see if a business is registered as a partnership.
A partnership can get a little bit more technical if you get into the concept of limited partnership. In this instance, there are two different kinds of partners: a general partner and a limited partner. The general partner is personally responsible for all debts and the limited partner is like a shareholder of a corporation; that person has invested money and is only liable to creditors for the amount of his investment. For example, if the limited partner invests $10,000.00 and that $10,000.00 is fully paid in, then the limited partner is not exposed for any other liability. Limited partners generally are not active in the business and are really prevented from being active in the business. The general partners are generally active in the business, responsible for day to day activities, and, again, are liable for contracts the business enters into. There must be at least one general partner and one limited partner.
Partnerships can even consist of corporations, which form partnerships. Sometimes these are also formed as joint ventures. A joint venture is different because it is formed for just one limited purpose such as to run an event for a weekend or something like that.
Corporations of course are very familiar to all of us. There are formalities. They must be filed and they must be maintained. If they are not maintained, corporations are dissolved automatically by the state they are in generally after three years.
The whole point of a corporation is that there is no personal liability for their owners. However, there can be personal liability if they sign personal guarantees or if there is a theory for piercing the corporate veil.
Corporations are on file with the state. They can generally be confirmed through a telephone number or on line access.
Each state has its own corporation law, partnership law but most states have adopted the Uniform Partnership Act so partnership enforcement is consistent and also most states, or at least 75% of the states, have adopted the Model Business Corporation Law which is also uniform.
Like the Uniform Commercial Code, these are all laws adopted in individual states. None of these are federal laws. However, there is remarkable uniformity throughout the country.
Question: Who is liable with regard to these legal entities and who can we cask to pay us when we make our demand?
Answer: This is a very good question and probably should be broken down as
follows: those legal entities which we call and can remind the owners that they are personally obligated and those business debtors we call knowing that there is only business liability.
First, the entities with personal liability:
1. Proprietorship. If the business is John Jones dba Jones Bike Shop or anything similar, John Jones is personally liable. The bike shop could have folded but Jones’ personal assets are still exposed to you, the creditor. You can threaten to sue him personally. You can threaten to sue him and take his personal assets as part of that process (this should all be done professionally as you know). There is full personal liability and a sole proprietor cannot escape that.
2. General Partners of a Partnership are personally liable the same way sold proprietors are. You can remind them when you make your collection calls that they will be held personally liable for contracts and that their personal assets are “on he line”. Of course, this is not true with regard to limited partners.
3. Corporations involved no personal liability with a few exceptions: check your client’s documents carefully to see if there are any personal guarantees which would make those individuals (generally top officers) personally liable for business debts. The guarantees may even contain some restrictive provisions such as a limitation in dollar amount or a limitation of time.
There are a few other ways that corporate officers or directors could be personally liable for debts but when making demand over the phone, I would not go into it. In other words, you may be considering a theory of piercing the corporation veil because there was some fraud or concealment or whatever. After checking with an attorney experienced in that area, you could probably make such a demand but otherwise, I would stay away from it.
A corporation, which has expired, and the debt was incurred after the expiration date is a potential basis for personal liability. I use the word “potential” because the corporation can re-file itself and erase the personal liability. That can happen any time up until the entry of judgment in most states. Let'’ take an example so that this concept is clear; Fred Jones owns Jones Corporation. He files the corporation but fails to file annual reports. After three years, Jones Corporation is dissolved. The disillusion (that is what it is called) occurs for purposes of this example on August 1, 2001. On September 1, 2001, he buys $10,000.00 worth of product from your client. At the time the produce is purchased, the corporation is technically defunct, dissolved, does not exist legally. He can use some theory such as “de facto” or “de jure” if he knows the lingo but you can also remind him that your client is prepared to litigate on the basis of personal liability since the corporation was dissolved at the time the purchases were made. There was no corporate entity at that time.
Likewise, some debt can be incurred prior to the corporation being formed. This is called “promoter liability”. If for example, John Jones owned a Jones Corporation but he incurred some debt from your client prior to the corporation actually being formed with the state (it is very easy to determine the incorporation date by calling the state) then he is personally liable to you as a promoter of the corporation.
This applies to commercial collections as well, as the debtor is a legal entity, and it must be identified.
Therefore, in matters of commercial claims, it is important to know what legal entity the client did business with.
Question: What is a “legal entity” and why is that concept important to me as a collector?
Answer: Legal entity is the term, which describes the business formation of a company. The most common legal entities are proprietorship, partnership, and corporation. These entities are very significant for the collector as more fully described in the question which follows this one.
A proprietorship is a simple form of business involving a single owner who has the business in his own name. An example is John Jones dba Jones Bike Shop. This form of business may not even be registered. Occasionally, you find the business is registered under the assumed name or fictitious name county filings in the county where the business is operated.
A partnership is a little bit more complicated but similar to a proprietorship with more people. The general partners are the owners, and, like a proprietorship, they are personally responsible for all debts incurred by the business. An example would be John Smith and Mary Smith dba Smith’s Bike Shop. A fictitious or assumed name certificate may be filed in the county. A certificate of a partnership may be filed in the county or even with the state in some states. Some states have lookup documents where you can lookup to see if a business is registered as a partnership.
A partnership can get a little bit more technical if you get into the concept of limited partnership. In this instance, there are two different kinds of partners: a general partner and a limited partner. The general partner is personally responsible for all debts and the limited partner is like a shareholder of a corporation; that person has invested money and is only liable to creditors for the amount of his investment. For example, if the limited partner invests $10,000.00 and that $10,000.00 is fully paid in, then the limited partner is not exposed for any other liability. Limited partners generally are not active in the business and are really prevented from being active in the business. The general partners are generally active in the business, responsible for day to day activities, and, again, are liable for contracts the business enters into. There must be at least one general partner and one limited partner.
Partnerships can even consist of corporations, which form partnerships. Sometimes these are also formed as joint ventures. A joint venture is different because it is formed for just one limited purpose such as to run an event for a weekend or something like that.
Corporations of course are very familiar to all of us. There are formalities. They must be filed and they must be maintained. If they are not maintained, corporations are dissolved automatically by the state they are in generally after three years.
The whole point of a corporation is that there is no personal liability for their owners. However, there can be personal liability if they sign personal guarantees or if there is a theory for piercing the corporate veil.
Corporations are on file with the state. They can generally be confirmed through a telephone number or on line access.
Each state has its own corporation law, partnership law but most states have adopted the Uniform Partnership Act so partnership enforcement is consistent and also most states, or at least 75% of the states, have adopted the Model Business Corporation Law which is also uniform.
Like the Uniform Commercial Code, these are all laws adopted in individual states. None of these are federal laws. However, there is remarkable uniformity throughout the country.
Question: Who is liable with regard to these legal entities and who can we cask to pay us when we make our demand?
Answer: This is a very good question and probably should be broken down as
follows: those legal entities which we call and can remind the owners that they are personally obligated and those business debtors we call knowing that there is only business liability.
First, the entities with personal liability:
1. Proprietorship. If the business is John Jones dba Jones Bike Shop or anything similar, John Jones is personally liable. The bike shop could have folded but Jones’ personal assets are still exposed to you, the creditor. You can threaten to sue him personally. You can threaten to sue him and take his personal assets as part of that process (this should all be done professionally as you know). There is full personal liability and a sole proprietor cannot escape that.
2. General Partners of a Partnership are personally liable the same way sold proprietors are. You can remind them when you make your collection calls that they will be held personally liable for contracts and that their personal assets are “on he line”. Of course, this is not true with regard to limited partners.
3. Corporations involved no personal liability with a few exceptions: check your client’s documents carefully to see if there are any personal guarantees which would make those individuals (generally top officers) personally liable for business debts. The guarantees may even contain some restrictive provisions such as a limitation in dollar amount or a limitation of time.
There are a few other ways that corporate officers or directors could be personally liable for debts but when making demand over the phone, I would not go into it. In other words, you may be considering a theory of piercing the corporation veil because there was some fraud or concealment or whatever. After checking with an attorney experienced in that area, you could probably make such a demand but otherwise, I would stay away from it.
A corporation, which has expired, and the debt was incurred after the expiration date is a potential basis for personal liability. I use the word “potential” because the corporation can re-file itself and erase the personal liability. That can happen any time up until the entry of judgment in most states. Let'’ take an example so that this concept is clear; Fred Jones owns Jones Corporation. He files the corporation but fails to file annual reports. After three years, Jones Corporation is dissolved. The disillusion (that is what it is called) occurs for purposes of this example on August 1, 2001. On September 1, 2001, he buys $10,000.00 worth of product from your client. At the time the produce is purchased, the corporation is technically defunct, dissolved, does not exist legally. He can use some theory such as “de facto” or “de jure” if he knows the lingo but you can also remind him that your client is prepared to litigate on the basis of personal liability since the corporation was dissolved at the time the purchases were made. There was no corporate entity at that time.
Likewise, some debt can be incurred prior to the corporation being formed. This is called “promoter liability”. If for example, John Jones owned a Jones Corporation but he incurred some debt from your client prior to the corporation actually being formed with the state (it is very easy to determine the incorporation date by calling the state) then he is personally liable to you as a promoter of the corporation.
Tuesday, October 25, 2011
Collections--get those dollars in the door!
Getting dollars in the door is always a top priority. After all, how many times have you heard “I never received the shipment” or “I didn’t order the product” or “The product was broken when I received it” and really didn’t know what the law says about these objections? Well, it happens all the time in the commercial collection business and it is important for commercial collector and the collection manager to know exactly what the law says about these typical “debtor defenses”.
This seminar is an effort to cover some of the common debtor defenses or objections to paying the account.
Interestingly enough, the debtor’s goal in the commercial collection process is just the opposite of your goal. The debtor would like to make the whole matter very fuzzy and very confusing in addition to making it much more complicated than it really is. If the debtor succeeds, then the collector gets confused and even the client can be confused as to how much money is owed and what the real issues are. When that happens, collection is not successful.
Your goal is to make it very clear exactly what the issues are. Your goal is also to make it clear how much of the account the issues apply to. For example, if the total amount of the claim is $2,500.00, the first thing you want to find out when the debtor makes an objection to payment is how much of that account is actually disputed. If $1,000.00 out of $2,500.00 is disputed, make a clear note of that and of course challenge the debtor to pay the undisputed portion. The debtor generally won’t pay it but wants to hold the hold account as “hostage” until the matter is fully resolved. However, at least you are keeping your issues down to a minimum and you know that the bottom line is only $1,000.00 out of the whole account is actually disputed.
Your second goal then is to determine exactly what the dispute is relating to that $1,000.00. Determine if it is a particular invoice number or a particular shipment or whatever. Narrow it down to an identifiable quantity.
Third, find out exactly what the debtor is objecting to. Is he claiming it was late delivery so that he couldn’t sell the goods? Is he claiming the goods were defective? How to handle these particular objections (and more) is really the subject of this teleseminar and will be dealt with.
Finally, assuming that the debtor wants to hold the whole account as “hostage” until the disputed portion is resolved, you can go in one of two directions. First, you can see if the client is willing to concede or give away the disputed portion. If the client will credit the $1,000.00, then the debtor has to pay the other $1,500.00 which is undisputed, correct? Now, you don’t want to take advantage of your client or “sell your client down the river” so you have to be careful as to when and where that strategy is used.
The other strategy which is a problem solving strategy is to take the information from the debtor back to the client and find out exactly what the client’s reply is. Once you have the client’s information, you can deal with the debtor again. If the debtor keeps changing his story, you can assume that he is lying. If the debtor, however, is consistent in the story as to what he believes happened, then make sure your client is also clear.
Once you have both sides of the story, you are in the best position to try and resolve the account. If the parties don’t agree at all as to what happened, then it is probably time to settle the disputed portion of the claim. By that I mean, you might just have to recommend an arbitrary figure, like 50% of the amount owed (again, just of the disputed portion) to resolve it. In my scenario, if the full claim is for $2,500.00, and the disputed portion of the claim is $1,000.00, then the $1,000.00 dispute perhaps should be resolved for $500.00 or thereabouts if the parties simply can’t come to terms. Even if the client splits the difference on the disputed portion, the debtor should still pay a total of the $1,500.00 non disputed portion plus the $500.00 settlement for a total of $2,000.00 out of $2,500.00. That’s not bad. You’ve done a good days work if you pull that off in most instances. Don’t expect a pat on the back from the client because they aren’t happy no matter what you do if you collect anything less than full payment but you know you’ve done a good job.
You have to know something about the law in order to negotiate the settlements. That’s the purpose of this teleseminar. You are at a weak spot if you can’t make a strong statement to your debtor as to what the law is. You are also unable to deal with your own client unless you can make a strong statement of what the law is. As I point out in this teleseminar, sometimes the client is wrong and they just don’t want to face it. Sometimes the client has the law against them and they just don’t want to face that. You can salvage a good settlement and keep a good relationship with your client in most instances if you just point out, in a sympathetic fashion that while you would like to agree with your client’s position, the law isn’t always helpful and sometimes it’s not even always logical. By doing this, your client has the “legal system” to blame and not you in the client’s effort to justify taking a settlement of less than the full amount. This strategy will become clearer when we talk about the individual debtor objections.
This seminar is an effort to cover some of the common debtor defenses or objections to paying the account.
Interestingly enough, the debtor’s goal in the commercial collection process is just the opposite of your goal. The debtor would like to make the whole matter very fuzzy and very confusing in addition to making it much more complicated than it really is. If the debtor succeeds, then the collector gets confused and even the client can be confused as to how much money is owed and what the real issues are. When that happens, collection is not successful.
Your goal is to make it very clear exactly what the issues are. Your goal is also to make it clear how much of the account the issues apply to. For example, if the total amount of the claim is $2,500.00, the first thing you want to find out when the debtor makes an objection to payment is how much of that account is actually disputed. If $1,000.00 out of $2,500.00 is disputed, make a clear note of that and of course challenge the debtor to pay the undisputed portion. The debtor generally won’t pay it but wants to hold the hold account as “hostage” until the matter is fully resolved. However, at least you are keeping your issues down to a minimum and you know that the bottom line is only $1,000.00 out of the whole account is actually disputed.
Your second goal then is to determine exactly what the dispute is relating to that $1,000.00. Determine if it is a particular invoice number or a particular shipment or whatever. Narrow it down to an identifiable quantity.
Third, find out exactly what the debtor is objecting to. Is he claiming it was late delivery so that he couldn’t sell the goods? Is he claiming the goods were defective? How to handle these particular objections (and more) is really the subject of this teleseminar and will be dealt with.
Finally, assuming that the debtor wants to hold the whole account as “hostage” until the disputed portion is resolved, you can go in one of two directions. First, you can see if the client is willing to concede or give away the disputed portion. If the client will credit the $1,000.00, then the debtor has to pay the other $1,500.00 which is undisputed, correct? Now, you don’t want to take advantage of your client or “sell your client down the river” so you have to be careful as to when and where that strategy is used.
The other strategy which is a problem solving strategy is to take the information from the debtor back to the client and find out exactly what the client’s reply is. Once you have the client’s information, you can deal with the debtor again. If the debtor keeps changing his story, you can assume that he is lying. If the debtor, however, is consistent in the story as to what he believes happened, then make sure your client is also clear.
Once you have both sides of the story, you are in the best position to try and resolve the account. If the parties don’t agree at all as to what happened, then it is probably time to settle the disputed portion of the claim. By that I mean, you might just have to recommend an arbitrary figure, like 50% of the amount owed (again, just of the disputed portion) to resolve it. In my scenario, if the full claim is for $2,500.00, and the disputed portion of the claim is $1,000.00, then the $1,000.00 dispute perhaps should be resolved for $500.00 or thereabouts if the parties simply can’t come to terms. Even if the client splits the difference on the disputed portion, the debtor should still pay a total of the $1,500.00 non disputed portion plus the $500.00 settlement for a total of $2,000.00 out of $2,500.00. That’s not bad. You’ve done a good days work if you pull that off in most instances. Don’t expect a pat on the back from the client because they aren’t happy no matter what you do if you collect anything less than full payment but you know you’ve done a good job.
You have to know something about the law in order to negotiate the settlements. That’s the purpose of this teleseminar. You are at a weak spot if you can’t make a strong statement to your debtor as to what the law is. You are also unable to deal with your own client unless you can make a strong statement of what the law is. As I point out in this teleseminar, sometimes the client is wrong and they just don’t want to face it. Sometimes the client has the law against them and they just don’t want to face that. You can salvage a good settlement and keep a good relationship with your client in most instances if you just point out, in a sympathetic fashion that while you would like to agree with your client’s position, the law isn’t always helpful and sometimes it’s not even always logical. By doing this, your client has the “legal system” to blame and not you in the client’s effort to justify taking a settlement of less than the full amount. This strategy will become clearer when we talk about the individual debtor objections.
Saturday, September 24, 2011
Collecting past dues: Put payment agreements in writing because it isn't done if it isn't in writing!
Truer words were never spoken. Striking a deal with a debtor who owes you money can be difficult and an absolutely exhausting process. The two parties don’t even have the same goals in mind: the debtor is trying to preserve cash for payment of other bills while your goal is to get your outstanding balance paid off in full. Once the work is done, though, and even if some compromises are made from your perspective, you don’t want to start the whole process over again. You don’t want the debtor to have a “short memory” and come up with something like: “Wasn’t I suppose to pay you $50.00 per month starting March 10th?” when the real deal was $150.00 per month starting February 1st. How could he forget? Because it’s a convenient truth to a debtor struggling to pay other debts.
So, along comes a writing. It doesn’t have to be “legal” – it doesn’t have to be long – it just has to state the terms of the agreement in plain and simple language so both sides understand what the obligations are.
Thinking past the negotiated resolution of the unpaid balance, you are hoping the debtor does honor his or her commitment by making the payments on time. However, a part of you knows that there is a 50/50 chance, at least, that your debtor will default in making payments on this negotiated schedule. You may end up having to file a collection lawsuit and drag the debtor into court.
With this in mind, your goal is not only to arrive at a writing which memorializes the payment agreement, but also to have a clear document signed by the debtor admitting the balance owed and confirming promises to pay it off.
Why would this be important if you’re planning on suing the debtor should defaults in the payment schedule occur? Because the fastest way to obtain a judgment against your debtor is to show the court an admission of the debt and promises to pay it in writing. In other words, courts love to see clear cut writings. Indeed, all of your contracts made with suppliers, customers and other third parties should be clear, concise and contain language that just can’t be misinterpreted. The same reasoning applies: if these matters have to be litigated at some point in the future, you want a slam dunk case to be presented to the judge.
Even after three decades of shoving collection cases under the noses of judges, it is still a real thrill to hear a judge declare, now and then, “Based on what I’ve seen—including written admissions of the debt—it sure seems like the defendant (debtor) owes the money…”
So, we put agreements in writing. The debtor then has a document to refer to should his memory become short and so that, perhaps, a court will make a ruling in your favor if you have to sue to recover your money.
Written agreements have the effect of modifying prior written agreements. If, for example, you have a prior promissory note secured by a mortgage with all sorts of terms allowing for interest, attorney fees, foreclosure rights and the like, you wouldn’t want to replace such an agreement with a weaker (less terms) promissory note or writing having the legal effect of wiping out your remedies under the prior note or agreement. If in doubt, seek professional advise first, before using subsequent written agreements.
So, along comes a writing. It doesn’t have to be “legal” – it doesn’t have to be long – it just has to state the terms of the agreement in plain and simple language so both sides understand what the obligations are.
Thinking past the negotiated resolution of the unpaid balance, you are hoping the debtor does honor his or her commitment by making the payments on time. However, a part of you knows that there is a 50/50 chance, at least, that your debtor will default in making payments on this negotiated schedule. You may end up having to file a collection lawsuit and drag the debtor into court.
With this in mind, your goal is not only to arrive at a writing which memorializes the payment agreement, but also to have a clear document signed by the debtor admitting the balance owed and confirming promises to pay it off.
Why would this be important if you’re planning on suing the debtor should defaults in the payment schedule occur? Because the fastest way to obtain a judgment against your debtor is to show the court an admission of the debt and promises to pay it in writing. In other words, courts love to see clear cut writings. Indeed, all of your contracts made with suppliers, customers and other third parties should be clear, concise and contain language that just can’t be misinterpreted. The same reasoning applies: if these matters have to be litigated at some point in the future, you want a slam dunk case to be presented to the judge.
Even after three decades of shoving collection cases under the noses of judges, it is still a real thrill to hear a judge declare, now and then, “Based on what I’ve seen—including written admissions of the debt—it sure seems like the defendant (debtor) owes the money…”
So, we put agreements in writing. The debtor then has a document to refer to should his memory become short and so that, perhaps, a court will make a ruling in your favor if you have to sue to recover your money.
Written agreements have the effect of modifying prior written agreements. If, for example, you have a prior promissory note secured by a mortgage with all sorts of terms allowing for interest, attorney fees, foreclosure rights and the like, you wouldn’t want to replace such an agreement with a weaker (less terms) promissory note or writing having the legal effect of wiping out your remedies under the prior note or agreement. If in doubt, seek professional advise first, before using subsequent written agreements.
Monday, September 19, 2011
Using documents in the extension of credit
You can help keep the odds in your favor by insisting on good documentation throughout the credit and collection process. Good documentation begins with a credit application, which is required before your first sale on credit to any customer, new or old.
Beyond requiring credit applications, you should frequently review credit information for all your customers. Depending on your industry and your history with the customer, reviews might occur every six months or every year, but even with established customers you won’t want to go beyond a two year review schedule. In between reviews, update your customer’s credit information whenever you come across new relevant information. Have your customers complete a new credit application or make appropriate additions and deletions to the old one.
You can avoid a lot of difficulties with defaults if you monitor your clients for changes in their business and financial health. For example, if you find out that a customer’s business has new ownership, or that the owners have formed a new but similar company (John’s Bike Shop is now John and Mary’s Bike Shop), it may be time to thoroughly recheck that customer. Sometimes your clients really don’t want you to find out about changes, and that’s a reason in and of itself to recheck them.
If a customer won’t take the time to fill out a credit application, and you choose (or need) to extend credit to the customer anyway, you can protect yourself. Make sure you interview that customer to obtain the information you need to determine creditworthiness and to use as a resource if the customer’s paying habits deteriorate. If you interview the customer by phone, keep a recording of the call (but be sure you can legally record the call under the laws of your state), or write the answers down on your standard credit application and add the completed document to the client’s credit file. Basic information includes:
* Full, legal name, physical address, and phone numbers.
* E-mail addresses, Web sites, and other online references.
* Contact persons.
* The customer’s legal entity (corporation, limited liability company, partnership, and so on) in case of eventual litigation.
* Agreements concerning payment of interest and costs of collection, together with other written agreements you and the customer enter.
* Bank account information, which is extremely useful if and when you’re looking for assets to attach post judgment.
Even with a formal credit application in hand, you may require other key documents before extending credit, including
* Financial statements, which establish a picture of the applicant’s assets and liabilities as of a certain date.
* Operating statements, which show the applicant’s sales and profits over a certain span of time.
* Personal guaranties, giving your company additional protection should the customer’s business falter.
* Liens that, in the event of default, allow you to take action against the customer’
For a complete discussion on this topic, see this book
Beyond requiring credit applications, you should frequently review credit information for all your customers. Depending on your industry and your history with the customer, reviews might occur every six months or every year, but even with established customers you won’t want to go beyond a two year review schedule. In between reviews, update your customer’s credit information whenever you come across new relevant information. Have your customers complete a new credit application or make appropriate additions and deletions to the old one.
You can avoid a lot of difficulties with defaults if you monitor your clients for changes in their business and financial health. For example, if you find out that a customer’s business has new ownership, or that the owners have formed a new but similar company (John’s Bike Shop is now John and Mary’s Bike Shop), it may be time to thoroughly recheck that customer. Sometimes your clients really don’t want you to find out about changes, and that’s a reason in and of itself to recheck them.
If a customer won’t take the time to fill out a credit application, and you choose (or need) to extend credit to the customer anyway, you can protect yourself. Make sure you interview that customer to obtain the information you need to determine creditworthiness and to use as a resource if the customer’s paying habits deteriorate. If you interview the customer by phone, keep a recording of the call (but be sure you can legally record the call under the laws of your state), or write the answers down on your standard credit application and add the completed document to the client’s credit file. Basic information includes:
* Full, legal name, physical address, and phone numbers.
* E-mail addresses, Web sites, and other online references.
* Contact persons.
* The customer’s legal entity (corporation, limited liability company, partnership, and so on) in case of eventual litigation.
* Agreements concerning payment of interest and costs of collection, together with other written agreements you and the customer enter.
* Bank account information, which is extremely useful if and when you’re looking for assets to attach post judgment.
Even with a formal credit application in hand, you may require other key documents before extending credit, including
* Financial statements, which establish a picture of the applicant’s assets and liabilities as of a certain date.
* Operating statements, which show the applicant’s sales and profits over a certain span of time.
* Personal guaranties, giving your company additional protection should the customer’s business falter.
* Liens that, in the event of default, allow you to take action against the customer’
For a complete discussion on this topic, see this book
Thursday, August 25, 2011
Credit Reports on Consumer Debtors: Limitations!
A United States District Court in the Ninth Circuit held that the Fair Credit Reporting Act severely limits when a creditor can access a consumer credit report. Specifically, the court held a consumer credit report (Experian, Equifax, and Trans Union are the key players in this arena) could only be drawn when the underlying debt involves a “credit transaction.”
So, what is a CREDIT TRANSACTION? Well, it is where the consumer voluntarily seeks credit, such as a credit card, promissory note, or other voluntary credit transaction. Examples of an involuntary credit transaction, where the creditor can’t pull a credit report, would be where the consumer didn’t voluntarily enter into a credit relationship with a creditor, such as where the debt arose from a traffic ticket or towing charges for failure to pay a ticket.
Many industry groups have opposed this ruling as it has become common practice to draw a credit report during the collection process of any debt, no matter how the debt was incurred. How-ever, the United States Supreme Court ( in a January 2011 refusal to grant Certiorari), has refused to review the Ninth Circuit’s decision, thus, the ruling stands.
So, bottom line, a consumer credit report can be drawn only where:
1. There is a judgment against the consumer for a debt, regardless of source. Or,
2. The underlying debt before a judgment is entered is based upon a “credit transaction” which means, according to the court, a voluntary transaction such as a credit card, a note, a debt voluntarily entered into...basically, situations where a consumer requested and re-ceived credit.
The case was Pintos v Pacific Creditors Association. It was heard in May 2010. The U.S. Supreme Court refusal to review the Ninth Circuit holding was done in January 2011.
Where do we go from here? Well, stay tuned as there may be more case decisions on point as we go forward, perhaps from other circuits. However, for now, we must look at the underlying debt on each file to determine whether (unless we have a judgment) we have a permissible purpose to pull a consumer credit report—the key being whether the consumer voluntarily requested the credit transaction.
Click here to see a PDF file of the actual court case
So, what is a CREDIT TRANSACTION? Well, it is where the consumer voluntarily seeks credit, such as a credit card, promissory note, or other voluntary credit transaction. Examples of an involuntary credit transaction, where the creditor can’t pull a credit report, would be where the consumer didn’t voluntarily enter into a credit relationship with a creditor, such as where the debt arose from a traffic ticket or towing charges for failure to pay a ticket.
Many industry groups have opposed this ruling as it has become common practice to draw a credit report during the collection process of any debt, no matter how the debt was incurred. How-ever, the United States Supreme Court ( in a January 2011 refusal to grant Certiorari), has refused to review the Ninth Circuit’s decision, thus, the ruling stands.
So, bottom line, a consumer credit report can be drawn only where:
1. There is a judgment against the consumer for a debt, regardless of source. Or,
2. The underlying debt before a judgment is entered is based upon a “credit transaction” which means, according to the court, a voluntary transaction such as a credit card, a note, a debt voluntarily entered into...basically, situations where a consumer requested and re-ceived credit.
The case was Pintos v Pacific Creditors Association. It was heard in May 2010. The U.S. Supreme Court refusal to review the Ninth Circuit holding was done in January 2011.
Where do we go from here? Well, stay tuned as there may be more case decisions on point as we go forward, perhaps from other circuits. However, for now, we must look at the underlying debt on each file to determine whether (unless we have a judgment) we have a permissible purpose to pull a consumer credit report—the key being whether the consumer voluntarily requested the credit transaction.
Click here to see a PDF file of the actual court case
Wednesday, August 24, 2011
Collections Using a Dialer (auto dialing or predictive dialers): Caution!!!
According to recent reports, a federal lawsuit will NOT be dismissed by the court in a situation where a collection agency used a dialer to contact a debtor. The plaintiff in that suit, a debtor being dunned by the agency, was called on their cell phone from an automatic dialer. The law involved is the Telephone Consumer Protection Act, and it now involves debt collectors (it may have been designed to snag telemarketers).
Many large debt collectors use these dialer systems, and should be cautious about using them, and what numbers are fed into them.
Quoting from the case: The TCPA prohibits calls to certain telephone numbers,
including cellular telephone numbers, using an “automatic telephone
dialing system,” except in an emergency or with the recipient’s
“prior express consent.” 47 U.S.C. § 227 (b)(1). As defined in
the statute, an “automatic telephone dialing system” means
“equipment that has the capacity — (A) to store or produce
telephone numbers to be called, using a random or sequential number
generator; and (B) to dial such numbers.” 47 U.S.C. § 227 (a)(1).
The phrase “random or sequential number generator” is not defined.
As we understand these terms, “random number generation” means
random sequences of 10 digits, and “sequential number generation”
means (for example) (111) 111-1111, (111) 111-1112, and so on.
CPS’s expert states that early dialers operated in this fashion,
calling every conceivable telephone number. (Cutler Decl. ¶ 15.)
More recently, companies like Castel have developed dialers that
call lists of known telephone numbers — in this case, the telephone
numbers of CPS’s customers.
Read the case, itself, click here
Many large debt collectors use these dialer systems, and should be cautious about using them, and what numbers are fed into them.
Quoting from the case: The TCPA prohibits calls to certain telephone numbers,
including cellular telephone numbers, using an “automatic telephone
dialing system,” except in an emergency or with the recipient’s
“prior express consent.” 47 U.S.C. § 227 (b)(1). As defined in
the statute, an “automatic telephone dialing system” means
“equipment that has the capacity — (A) to store or produce
telephone numbers to be called, using a random or sequential number
generator; and (B) to dial such numbers.” 47 U.S.C. § 227 (a)(1).
The phrase “random or sequential number generator” is not defined.
As we understand these terms, “random number generation” means
random sequences of 10 digits, and “sequential number generation”
means (for example) (111) 111-1111, (111) 111-1112, and so on.
CPS’s expert states that early dialers operated in this fashion,
calling every conceivable telephone number. (Cutler Decl. ¶ 15.)
More recently, companies like Castel have developed dialers that
call lists of known telephone numbers — in this case, the telephone
numbers of CPS’s customers.
Read the case, itself, click here
Thursday, August 18, 2011
Collecting Past Due Money: Red Flags to Watch For!
Keeping a steady cash flow is difficult in good economic times and a real challenge when recessionary pressures set in. Since cash flow is critical to payment of your company’s own bills, a cycle of events occurs, starting with your customers’ commitments to pay your company’s invoices timely. In other words, a domino effect occurs when your customers fail to pay your company on time—resulting in your company’s inability to pay its creditors on time.
To keep your cash flow positive and sufficient to cover your company’s bills, you must implement some general controls as part of your credit policy. Some advice:
* Be aware of slowing payments. I can’t emphasize this red flag enough. Watch for any signs of deterioration in paying habits. While one late payment may not break the bank, it is significant as it shows a disregard of your company’s payment terms—such that even one late payment does justify a polite nudge to the customer. The nudge may take the form of a “thanks for the payment” compliment combined with a gentle reminder of the terms—“please keep in mind the terms are [whatever the terms are, such as net 30].”
* Be ready to respond to customer bad habits. Communicate with your customers. Let them know slowdowns in paying habits aren’t acceptable, and prompt them to make payments. Once a second payment late, for example, inform them that you may have to take steps to correct late payment habits, such as the temporary suspension of credit terms.
At the early stages of payment slowdowns, you can be intentionally vague about what steps you may take, especially if you don’t intend to take stronger action at that point. Your customer will still get the message.
* Be considerate, yet firm. No need to panic and ruin a relationship . . . yet. Your communication at this stage is still very polite, yet firm enough to convey dissatisfaction—such as notifying your customer that a privilege, such as favorable credit terms or 24/7 availability of goods or services, may have to be suspended until confidence in prompt paying habits is restored.
* Be prepared to reduce a line of credit, require COD (cash on delivery), or cut off deliveries or services. If invoices are being paid slower and slower, don’t get yourself in any deeper. You don’t want or need the added credit exposure.
Let your customer know that you’re following established credit policies (discuussed in detail in Chapter 2) that require specific responses to deterioration in paying habits, including reduction and possible elimination of credit terms. The old standby: “It’s nothing personal – it’s just business” approach can help you avoid sending bad vibrations to a customer you’re simply trying to nudge back on track.
* Be honest in your communications. Although some consider bluffing to be an acceptable tool in business, it’s not effective a second time, and perhaps not even a first time. If you threaten to take action if you don’t get what you’ve asked for, be prepared to do it.
If you notice a decline, step up the pressure for payment, as discussed in Part II. Notify the appropriate people within your own company that they may experience a slowdown in cash flow. If the account is substantial, they may want or need to adjust the company’s expenditures in advance of encountering financial problems. Adjustments may include delaying discretionary purchases or employing free interns from local schools, rather than hiring more hourly help.
To keep your cash flow positive and sufficient to cover your company’s bills, you must implement some general controls as part of your credit policy. Some advice:
* Be aware of slowing payments. I can’t emphasize this red flag enough. Watch for any signs of deterioration in paying habits. While one late payment may not break the bank, it is significant as it shows a disregard of your company’s payment terms—such that even one late payment does justify a polite nudge to the customer. The nudge may take the form of a “thanks for the payment” compliment combined with a gentle reminder of the terms—“please keep in mind the terms are [whatever the terms are, such as net 30].”
* Be ready to respond to customer bad habits. Communicate with your customers. Let them know slowdowns in paying habits aren’t acceptable, and prompt them to make payments. Once a second payment late, for example, inform them that you may have to take steps to correct late payment habits, such as the temporary suspension of credit terms.
At the early stages of payment slowdowns, you can be intentionally vague about what steps you may take, especially if you don’t intend to take stronger action at that point. Your customer will still get the message.
* Be considerate, yet firm. No need to panic and ruin a relationship . . . yet. Your communication at this stage is still very polite, yet firm enough to convey dissatisfaction—such as notifying your customer that a privilege, such as favorable credit terms or 24/7 availability of goods or services, may have to be suspended until confidence in prompt paying habits is restored.
* Be prepared to reduce a line of credit, require COD (cash on delivery), or cut off deliveries or services. If invoices are being paid slower and slower, don’t get yourself in any deeper. You don’t want or need the added credit exposure.
Let your customer know that you’re following established credit policies (discuussed in detail in Chapter 2) that require specific responses to deterioration in paying habits, including reduction and possible elimination of credit terms. The old standby: “It’s nothing personal – it’s just business” approach can help you avoid sending bad vibrations to a customer you’re simply trying to nudge back on track.
* Be honest in your communications. Although some consider bluffing to be an acceptable tool in business, it’s not effective a second time, and perhaps not even a first time. If you threaten to take action if you don’t get what you’ve asked for, be prepared to do it.
If you notice a decline, step up the pressure for payment, as discussed in Part II. Notify the appropriate people within your own company that they may experience a slowdown in cash flow. If the account is substantial, they may want or need to adjust the company’s expenditures in advance of encountering financial problems. Adjustments may include delaying discretionary purchases or employing free interns from local schools, rather than hiring more hourly help.
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