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.
Steve Harms
Tuesday, October 25, 2011
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.
Wednesday, July 20, 2011
Collecting past due balances: Change can be good....or not!
Changes of Ownership
A change in ownership of the customer can change bill paying habits dramatically. You may have had a great relationship with a customer for years which may have resulted in being lax on updating credit information such as information contained on the credit application, financial statements and the other documentation discussed in detail in my books, including Credit and Collections Kit for Dummies. Upon making a call, you may discover that there are different voices on the phone and it can be revealed that new ownership took over. The name of the company remained the same so as to show some continuity of business. People like to deal with businesses that have been around for a while with little change.
Perhaps the most dramatic event which can occur on a change of ownership was refusal of the new owners to pay debts incurred by the prior owners. For example, if the change of ownership occurred in June last year, even though the name of the company remained the same, no changes were reported to you, an investigation may have to be initiated as to which invoices were actually sold to the prior owners, which invoices were sold to the current owners, and are the current owners liable for the debts of the prior owners.
Changes in ownership can significantly affect bill paying habits. Therefore, this is a key reason to periodically have your client submit a new credit application as the application itself defines the name of the business entity and who the owners are. Don’t count on your customer to be forth right in providing that information.
Changes of Address or Phone Number
Observing a change of address or phone number is significant. It may reflect new ownership. It may be a result of a conflict with the landlord (an eviction perhaps).
Two trends have become increasingly popular in terms of address and phone number. With regard to addresses, it is increasingly common for small and medium sized businesses to show a post office box as the address or, more disturbing, the address of a mail drop service (such as a UPS store) as the physical address of the company. It is much easier for a customer to become elusive if a physical address is not disclosed to you. If a customer uses a post office box or a mail drop address, your credit application or some other form should insist that a physical address also be disclosed. You may follow up for verification using a post office confirmation of address as per the template provided below and on the CD.
A customer having the same phone number for a long period of time use to signify stability because phone numbers were tied in with addresses. Now, a phone number can receive a call and through modern technology that call can be forwarded anywhere in the world. Thus, a customer having the same phone number for a long period of time no longer signifies stability. You must keep tabs on the customer as to the physical address where the customer is located per the discussion above.
Changes In Order Volume
Part of your monitoring process with customers should include the ability to track the frequency or quantity of orders. Often times, a customer maintaining a steady volume of orders with you also maintains good paying habits. A decline in orders frequently leads to a decline in paying history. Maintaining good communication with the customer, most likely through the sales department at this point, may answer questions as to why there is a sales decline for that particular customer.
Noting Operating Losses
As part of the monitoring process, you receive financial statements which include balance sheets and operating statements. The operating statements show operating profits and losses. Should you spot a decline in profitability over time, deterioration in paying habits often follows.
Changes in Customer Attitude
A change in customer attitude can be subtle but very significant. For example, if the customer suddenly is disputing the accuracy of your billing or otherwise starts nit picking fairly minor issues, this might signal customer cash flow problems which will result in slower paying habits. If a customer incurs cash flow problems, they would like to be able to justify why they are paying slowly and might raise these minor disputes.
Your response is, once again, an open line of communication with quick resolution of issues, especially minor issues. Once those issues are resolved to the customer’s satisfaction, bill paying should return to normal promptness. If it doesn’t, the red flag is up and your instinct should be telling you to be cautious as to future extensions of credit.
A change in ownership of the customer can change bill paying habits dramatically. You may have had a great relationship with a customer for years which may have resulted in being lax on updating credit information such as information contained on the credit application, financial statements and the other documentation discussed in detail in my books, including Credit and Collections Kit for Dummies. Upon making a call, you may discover that there are different voices on the phone and it can be revealed that new ownership took over. The name of the company remained the same so as to show some continuity of business. People like to deal with businesses that have been around for a while with little change.
Perhaps the most dramatic event which can occur on a change of ownership was refusal of the new owners to pay debts incurred by the prior owners. For example, if the change of ownership occurred in June last year, even though the name of the company remained the same, no changes were reported to you, an investigation may have to be initiated as to which invoices were actually sold to the prior owners, which invoices were sold to the current owners, and are the current owners liable for the debts of the prior owners.
Changes in ownership can significantly affect bill paying habits. Therefore, this is a key reason to periodically have your client submit a new credit application as the application itself defines the name of the business entity and who the owners are. Don’t count on your customer to be forth right in providing that information.
Changes of Address or Phone Number
Observing a change of address or phone number is significant. It may reflect new ownership. It may be a result of a conflict with the landlord (an eviction perhaps).
Two trends have become increasingly popular in terms of address and phone number. With regard to addresses, it is increasingly common for small and medium sized businesses to show a post office box as the address or, more disturbing, the address of a mail drop service (such as a UPS store) as the physical address of the company. It is much easier for a customer to become elusive if a physical address is not disclosed to you. If a customer uses a post office box or a mail drop address, your credit application or some other form should insist that a physical address also be disclosed. You may follow up for verification using a post office confirmation of address as per the template provided below and on the CD.
A customer having the same phone number for a long period of time use to signify stability because phone numbers were tied in with addresses. Now, a phone number can receive a call and through modern technology that call can be forwarded anywhere in the world. Thus, a customer having the same phone number for a long period of time no longer signifies stability. You must keep tabs on the customer as to the physical address where the customer is located per the discussion above.
Changes In Order Volume
Part of your monitoring process with customers should include the ability to track the frequency or quantity of orders. Often times, a customer maintaining a steady volume of orders with you also maintains good paying habits. A decline in orders frequently leads to a decline in paying history. Maintaining good communication with the customer, most likely through the sales department at this point, may answer questions as to why there is a sales decline for that particular customer.
Noting Operating Losses
As part of the monitoring process, you receive financial statements which include balance sheets and operating statements. The operating statements show operating profits and losses. Should you spot a decline in profitability over time, deterioration in paying habits often follows.
Changes in Customer Attitude
A change in customer attitude can be subtle but very significant. For example, if the customer suddenly is disputing the accuracy of your billing or otherwise starts nit picking fairly minor issues, this might signal customer cash flow problems which will result in slower paying habits. If a customer incurs cash flow problems, they would like to be able to justify why they are paying slowly and might raise these minor disputes.
Your response is, once again, an open line of communication with quick resolution of issues, especially minor issues. Once those issues are resolved to the customer’s satisfaction, bill paying should return to normal promptness. If it doesn’t, the red flag is up and your instinct should be telling you to be cautious as to future extensions of credit.
Monday, July 11, 2011
Collecting Student Loans
The Federal Government categorizes the following loans as student loans: Perkins Loans, National Direct Student Loans (NDSL), and Defense Loans. The government has passed special legislation for the collection of student loans, favoring the creditor:
* Statute of Limitations: The statute of limitations (deadline for commencing a collection lawsuit) to enforce collection on Perkins Loans or National Direct Student Loans has been preempted by federal law, meaning that these loans can be pursued for the debtor’s lifetime.
* Non-Dischargeability: Under most circumstances, debts incurred under Perkins Loans or National Direct Student Loans under the Higher Education Act are not dischargeable in bankruptcy. Debtors may seek an exception based upon proof of special hardship, but that exception has been interpreted very narrowly.
* Recovery of Collection Costs: A creditor may recover reasonable collection costs on Perkins Loans or National Direct Student Loans. Recoverable costs may include the cost of address searches, collection actions including the cost of reporting defaulted accounts to credit bureaus, personal expenses incurred while collecting the debt, litigation expenses, attorney fees, and the costs of professional collection services such as the fees charged by collection agencies.
Student loan debtors are responsible for interest, which accrues at the contractual rate under the promissory note throughout the collection process.
Credit and Collections Kit...take a look!
* Statute of Limitations: The statute of limitations (deadline for commencing a collection lawsuit) to enforce collection on Perkins Loans or National Direct Student Loans has been preempted by federal law, meaning that these loans can be pursued for the debtor’s lifetime.
* Non-Dischargeability: Under most circumstances, debts incurred under Perkins Loans or National Direct Student Loans under the Higher Education Act are not dischargeable in bankruptcy. Debtors may seek an exception based upon proof of special hardship, but that exception has been interpreted very narrowly.
* Recovery of Collection Costs: A creditor may recover reasonable collection costs on Perkins Loans or National Direct Student Loans. Recoverable costs may include the cost of address searches, collection actions including the cost of reporting defaulted accounts to credit bureaus, personal expenses incurred while collecting the debt, litigation expenses, attorney fees, and the costs of professional collection services such as the fees charged by collection agencies.
Student loan debtors are responsible for interest, which accrues at the contractual rate under the promissory note throughout the collection process.
Credit and Collections Kit...take a look!
Tuesday, June 14, 2011
Statute of Limitations on the Sale of Goods: It's four years even if a payment is made
A Michigan Court of Appeals just ruled this month that the FOUR year statute of limitations built in to the Uniform Commercial Code (UCC) applies to all actions for open account sales of goods.
In the case, a payment was made on the account in May of 2005 and the suit was filed in August 2009 (four years and three months). The creditor argued that the payment started a whole new statute running, for SIX years (the traditional contract statute of limitations) rather than just four years.
The Court disagreed with the creditor. While the payment does start the running of the statute of limitations all over again, it runs for FOUR years, not six years.
BOTTOM LINE: in any transaction having to do with goods (as opposed to services like any professional services..accounting, legal, medical, or any other services), make sure your suit is FILED within FOUR years if your state, like Michigan has the typical UCC four year statute of limitations for the sale of goods! (The case is Fisher Sand and Gravel v Neal A Sweebe, an 8 page opinion available through Michigan Lawyers Weekly, 07-75990)
More Michigan Collection Law in extensive detail (700 page book), Handling the Collection Case in Michigan
In the case, a payment was made on the account in May of 2005 and the suit was filed in August 2009 (four years and three months). The creditor argued that the payment started a whole new statute running, for SIX years (the traditional contract statute of limitations) rather than just four years.
The Court disagreed with the creditor. While the payment does start the running of the statute of limitations all over again, it runs for FOUR years, not six years.
BOTTOM LINE: in any transaction having to do with goods (as opposed to services like any professional services..accounting, legal, medical, or any other services), make sure your suit is FILED within FOUR years if your state, like Michigan has the typical UCC four year statute of limitations for the sale of goods! (The case is Fisher Sand and Gravel v Neal A Sweebe, an 8 page opinion available through Michigan Lawyers Weekly, 07-75990)
More Michigan Collection Law in extensive detail (700 page book), Handling the Collection Case in Michigan
Wednesday, June 8, 2011
BAD CHECKS: More on what do do about NSF, account closed and other bad checks you receive
Why did the check bounce? Most often it’s because of a mistake by your customer. On rare occasions, it’s the result of the bank’s mistake. With a few simple steps you can minimize the incidence and impact of NSF checks, and an associated “bad check” fee from your bank:
* Deposit checks as soon as they arrive: If your customer has numerous outstanding checks, as is usually the case, being the first creditor to the bank
makes it more likely that your check will clear.
* Anticipate NSF checks: You’ll have customers who at times submit bad checks. You need to be proactive. Maintain sufficient balances in your accounts, and arrange for overdraft protection so when you unknowingly deposit a check that your customer doesn’t have the funds to cover, you don’t end up bouncing your own checks.
* Know your customer: Is your customer careless with accounts and payments, or is your customer experiencing cash-flow problems? Ideally you can anticipate whether you can safely redeposit the check or ask for a new check to be issued, or whether you should regard the NSF check as a pressing matter for collection.
When a check you deposit doesn’t clear, your bank will return the check to you. (It will have a number of marking on the front and back, indicating when and where it was processed by the banks involved and that it was rejected due to there being insufficient funds in the account at the time the check cleared.) If the customer doesn’t immediately offer to replace the NSF check with a cashier’s check, deposit the same check a second time. The second time may be the charm, and it just may clear. You can try to hedge your bet by calling the customer’s bank to see if it will confirm the presence of enough funds in the account for the check to clear, but remember that your customer’s account balance may increase or decrease by the time you deposit the check.
Monitor the second deposit, and if it fails to clear the second time, declare war. Your relationship with your customer has broken down, and it’s time for aggressive collection action. Send your customer a letter demanding that the NSF check be paid immediately.
Many states have laws that impose serious penalties on the act of writing NSF checks. Some of these laws are criminal, and you can call the police upon receiving an NSF check. You can also contact the district attorney’s office for the county where you received the check, and they’ll usually be able to tell both the laws for your state and their policies for prosecuting bad check cases.
Depending upon your state laws you may have to try to recover money from a bad check through civil proceedings (a lawsuit). Criminal prosecution is most likely when a check fails to clear after a COD (cash on delivery) order. When you contact the police, refer to this as a “contemporaneous exchange of value and intent to defraud.” The exchange is contemporaneous because you didn’t extend credit terms and the customer was supposed to pay you at the time of delivery. Intent to defraud is presumed because the customer didn’t put enough money in the account to cover the payment. If you accept payment on account or take a postdated check, the exchange isn’t considered “contemporaneous” and therefore won’t be prosecuted. You may still sue in civil court to try to recover the funds.
Theft by check may be a misdemeanor or even a felony under your state’s laws, but that doesn’t guarantee you’ll see your money. If the offender is put in jail, it may become even harder to recover the funds from the NSF check. How ironic.
For the police to even look at a case where you received an NSF check, there must have been no agreement by you to hold the check for a period of time.
What if your state doesn’t have a criminal statute, or the police tell you that it’s a civil matter that you have to resolve on your own? You use a form letter that reflects your state’s civil laws and penalties for collection of NSF checks. These penalties vary widely by state, so you need to adapt your form letter to match your state’s laws.
In addition to recovering the face value of the check, many states permit you to recover a civil penalty from a customer who issues a bad check. State civil laws allow you to sue the customer for additional sums of money, such as two or three times the amount of the check.
All communications to consumer debtors should include a statement that “This letter is an attempt to collect the debt, and any information obtained will be used for that purpose.” This ensures compliance with federal law 15 USC 1692e(11). When this warning is required but you fail to include it, its omission provides the debtor with grounds to recover money damages from you, even if you do everything else right.
Uncollected funds occur when your customer has deposited a check, possibly from one of its own customers, that fails to clear the bank, which results in your check bouncing. In other words, your customer has a check in its account that should cover the amount of the check it sent to you, but it doesn’t. A domino effect occurs: One bad check begets another.
When a check is returned, stamped “uncollected funds,” typically the situation isn’t as serious as with nonsufficient funds or account-closed payments. Most often, this problem results from your customer’s bad bookkeeping.
Good intentions or bad, you still need to get paid. If you’re unable to reach your customer or arrange for prompt alternative payment, deposit the check a second time. If it again doesn’t clear, let your customer know that you intend to send a courier over that afternoon to pick up replacement funds.
When a customer stops payment on a check, you know that the customer intended that the check be dishonored. Most often your customer will stop payment over a dispute with you, and it doesn’t want to pay until the dispute is resolved. Some customers stop payment as an aggressive means of canceling an order that has already shipped or been delivered. Often the first notice you receive of a customer’s dispute or change of heart is the check being dishonored by the bank.
The law treats stop-payment orders differently than nonsufficient funds or account-closed checks. Although you’re insulted that your customer placed the stop-payment order, a court may see that action as justified.
Preventing stop-payment checks is difficult. The most obvious solution is to insist on cash, money order, or a cashier’s check. Although it’s technically possible to stop payment on a cashier’s check, it’s very unusual for that to happen.
Your customer’s bank account has been closed, so the check you deposit from him won’t clear. The returned check will typically be marked “Account Closed” or “Refer to Maker”. Your initial reaction may be that your customer was malicious (yes, filled with bad intentions) because . . . well . . . who wouldn’t know their account was closed when the check was written? Hmm. But perhaps the customer had a good reason to close the account, or its bank closed it over an infraction or dispute after the customer issued the check.
This is a context where it’s good business to assume bad intent. Some of the most creative stories a collector hears come from customers embarrassed by bouncing checks who, when contacted, create fairy tales about why the check didn’t clear or why the account was closed (count the number of times you hear, “It was my bank’s fault”).
You should take aggressive action to collect account-closed checks. As with customers who have issued NSF checks, instruct everybody in your company who interacts with the bad-check-writer that this customer can’t be trusted and must be placed on cash-only terms. If you have given the customer credit terms, cut them off from further credit right now: Put this book down and go do it (then pick the book up again!). Then call your customer and let him know when your courier will be stopping by for payment.
* Deposit checks as soon as they arrive: If your customer has numerous outstanding checks, as is usually the case, being the first creditor to the bank
makes it more likely that your check will clear.
* Anticipate NSF checks: You’ll have customers who at times submit bad checks. You need to be proactive. Maintain sufficient balances in your accounts, and arrange for overdraft protection so when you unknowingly deposit a check that your customer doesn’t have the funds to cover, you don’t end up bouncing your own checks.
* Know your customer: Is your customer careless with accounts and payments, or is your customer experiencing cash-flow problems? Ideally you can anticipate whether you can safely redeposit the check or ask for a new check to be issued, or whether you should regard the NSF check as a pressing matter for collection.
When a check you deposit doesn’t clear, your bank will return the check to you. (It will have a number of marking on the front and back, indicating when and where it was processed by the banks involved and that it was rejected due to there being insufficient funds in the account at the time the check cleared.) If the customer doesn’t immediately offer to replace the NSF check with a cashier’s check, deposit the same check a second time. The second time may be the charm, and it just may clear. You can try to hedge your bet by calling the customer’s bank to see if it will confirm the presence of enough funds in the account for the check to clear, but remember that your customer’s account balance may increase or decrease by the time you deposit the check.
Monitor the second deposit, and if it fails to clear the second time, declare war. Your relationship with your customer has broken down, and it’s time for aggressive collection action. Send your customer a letter demanding that the NSF check be paid immediately.
Many states have laws that impose serious penalties on the act of writing NSF checks. Some of these laws are criminal, and you can call the police upon receiving an NSF check. You can also contact the district attorney’s office for the county where you received the check, and they’ll usually be able to tell both the laws for your state and their policies for prosecuting bad check cases.
Depending upon your state laws you may have to try to recover money from a bad check through civil proceedings (a lawsuit). Criminal prosecution is most likely when a check fails to clear after a COD (cash on delivery) order. When you contact the police, refer to this as a “contemporaneous exchange of value and intent to defraud.” The exchange is contemporaneous because you didn’t extend credit terms and the customer was supposed to pay you at the time of delivery. Intent to defraud is presumed because the customer didn’t put enough money in the account to cover the payment. If you accept payment on account or take a postdated check, the exchange isn’t considered “contemporaneous” and therefore won’t be prosecuted. You may still sue in civil court to try to recover the funds.
Theft by check may be a misdemeanor or even a felony under your state’s laws, but that doesn’t guarantee you’ll see your money. If the offender is put in jail, it may become even harder to recover the funds from the NSF check. How ironic.
For the police to even look at a case where you received an NSF check, there must have been no agreement by you to hold the check for a period of time.
What if your state doesn’t have a criminal statute, or the police tell you that it’s a civil matter that you have to resolve on your own? You use a form letter that reflects your state’s civil laws and penalties for collection of NSF checks. These penalties vary widely by state, so you need to adapt your form letter to match your state’s laws.
In addition to recovering the face value of the check, many states permit you to recover a civil penalty from a customer who issues a bad check. State civil laws allow you to sue the customer for additional sums of money, such as two or three times the amount of the check.
All communications to consumer debtors should include a statement that “This letter is an attempt to collect the debt, and any information obtained will be used for that purpose.” This ensures compliance with federal law 15 USC 1692e(11). When this warning is required but you fail to include it, its omission provides the debtor with grounds to recover money damages from you, even if you do everything else right.
Uncollected funds occur when your customer has deposited a check, possibly from one of its own customers, that fails to clear the bank, which results in your check bouncing. In other words, your customer has a check in its account that should cover the amount of the check it sent to you, but it doesn’t. A domino effect occurs: One bad check begets another.
When a check is returned, stamped “uncollected funds,” typically the situation isn’t as serious as with nonsufficient funds or account-closed payments. Most often, this problem results from your customer’s bad bookkeeping.
Good intentions or bad, you still need to get paid. If you’re unable to reach your customer or arrange for prompt alternative payment, deposit the check a second time. If it again doesn’t clear, let your customer know that you intend to send a courier over that afternoon to pick up replacement funds.
When a customer stops payment on a check, you know that the customer intended that the check be dishonored. Most often your customer will stop payment over a dispute with you, and it doesn’t want to pay until the dispute is resolved. Some customers stop payment as an aggressive means of canceling an order that has already shipped or been delivered. Often the first notice you receive of a customer’s dispute or change of heart is the check being dishonored by the bank.
The law treats stop-payment orders differently than nonsufficient funds or account-closed checks. Although you’re insulted that your customer placed the stop-payment order, a court may see that action as justified.
Preventing stop-payment checks is difficult. The most obvious solution is to insist on cash, money order, or a cashier’s check. Although it’s technically possible to stop payment on a cashier’s check, it’s very unusual for that to happen.
Your customer’s bank account has been closed, so the check you deposit from him won’t clear. The returned check will typically be marked “Account Closed” or “Refer to Maker”. Your initial reaction may be that your customer was malicious (yes, filled with bad intentions) because . . . well . . . who wouldn’t know their account was closed when the check was written? Hmm. But perhaps the customer had a good reason to close the account, or its bank closed it over an infraction or dispute after the customer issued the check.
This is a context where it’s good business to assume bad intent. Some of the most creative stories a collector hears come from customers embarrassed by bouncing checks who, when contacted, create fairy tales about why the check didn’t clear or why the account was closed (count the number of times you hear, “It was my bank’s fault”).
You should take aggressive action to collect account-closed checks. As with customers who have issued NSF checks, instruct everybody in your company who interacts with the bad-check-writer that this customer can’t be trusted and must be placed on cash-only terms. If you have given the customer credit terms, cut them off from further credit right now: Put this book down and go do it (then pick the book up again!). Then call your customer and let him know when your courier will be stopping by for payment.
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