Sometimes there is a challenge from a customer who refuses to pay a bill that: "You can't collect from me because I didn't properly sign a contract with you." Well, first of all, not all contracts need to be in writing in the first place (millions of dollars of goods are purchased daily on phone call agreements). Further, goods received by a customer, which aren't returned timely are ACCEPTED and the deal has been RATIFIED...which makes for a valid deal even without a contract. On the other hand, perhaps you DO have a valid signed contract: only the customer (debtor) signed electronically!
Electronic signatures, such as confirming emails or click-ons ("I agree") or similar buttons are valid means of entering into contracts which are binding, and which will be upheld in court.
There are two main laws dealing with the topic of electronic signatures, the Electronic Signatures in Global and National Commerce Act (E-SIGN) and the Uniform Electronic Transactions Act (UETA).
E-Sign is a federal act enacted 10/1/2000 providing that no contract be “denied legal” effect solely because it is in electronic form. In other words, an electronic signature may be just as enforceable as a written one.
UETA is a state act enacted in 1999 to create uniformity in state laws pertaining to e-commerce. This act is very similar to E-SIGN in that it establishes that “records, signatures, and contracts may not be denied enforceability solely due to their electronic form.”
The state law, UETA, is a uniform act, which, like the UCC, has been adopted in some form by most states…Michigan has adopted it.
Now, what is important is that both sides agree to the use of electronic signatures and that there be a way to prove the customer/debtor did consent….for example, client should require debtor to email back, or have a click on button “I agree” or something similar. IF information is merely AVAILABLE online, that won’t be adequate.
Most states also have restrictions on what contracts can be made or cancelled with e-sign…for example, insurance companies still have to mail out written cancellations of policies even if the contracts to purchase insurance were done by e-sign.
There are cases at the appeal level which have upheld the validity of e-sign by email and click on agreements.
Then, there is the practical, as opposed to legal, factor: some judges aren’t in the 20th Century!
Steve Harms
Monday, April 23, 2012
Tuesday, March 6, 2012
COLLECTING FROM BUSINESS ENTITIES: When is the owner personally liable for the debt?
Collection of commercial account can be tricky from the standpoint of WHO you can actually demand the money FROM…in other words, when is there PERSONAL LIABILITY FOR THE ACCOUNT.
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.
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.
Monday, March 5, 2012
Collection Scam Artists...they're even contacting consumers on fake debts!
The Federal Trade Commission governs much of our industry, and handles numerous complaints from consumers on such matters as Fair Debt Collection Practices Act violations. The newest scam appears to be the hiring or creation of call centers made up of fake debt collectors to make strong-arm collection calls on fake debts!
Yes, scam artists have figured out that if you harass someone enough, they might just pay a debt that doesn't even exist...just to get the "debt collector" off their back! The FTC offices are referring to this scam as phantom debt.
A number of consumers have already admitted to paying hundreds of dollars by check and even credit cards, to get rid of "collectors." These consumers paid these fake debts as they were worried the fake collectors really would follow up with threats to have them fired, garnished, arrested at work, or, they thought they may really owe the money from some pay check advance or similar situation they simply forgot about.
For those of us who are involved in legitimate collections, knowing that intentional violators of the FDCPA exist is bad enough. Now we find that scam artists have invaded our industry and are making collection demands on debts that don't exist to get money from innocent people.
According to a recent article in the Detroit Free Press (freepress.com), some callers are demanding as much as $2,000 from consumers, under threats of wage garnishments, having the consumer arrested at work and the like. The scam artists seem to have quite a bit of information on the people they are calling. Since one crooked debt collection firm took in $5 million, the scam obviously works.
I firmly believe anyone reading this blog is an honest debt collector just trying to collect on legit debts using legal means....however, we can't put our collective heads in the sand...we have to be aware of these illegal practices.
Yes, scam artists have figured out that if you harass someone enough, they might just pay a debt that doesn't even exist...just to get the "debt collector" off their back! The FTC offices are referring to this scam as phantom debt.
A number of consumers have already admitted to paying hundreds of dollars by check and even credit cards, to get rid of "collectors." These consumers paid these fake debts as they were worried the fake collectors really would follow up with threats to have them fired, garnished, arrested at work, or, they thought they may really owe the money from some pay check advance or similar situation they simply forgot about.
For those of us who are involved in legitimate collections, knowing that intentional violators of the FDCPA exist is bad enough. Now we find that scam artists have invaded our industry and are making collection demands on debts that don't exist to get money from innocent people.
According to a recent article in the Detroit Free Press (freepress.com), some callers are demanding as much as $2,000 from consumers, under threats of wage garnishments, having the consumer arrested at work and the like. The scam artists seem to have quite a bit of information on the people they are calling. Since one crooked debt collection firm took in $5 million, the scam obviously works.
I firmly believe anyone reading this blog is an honest debt collector just trying to collect on legit debts using legal means....however, we can't put our collective heads in the sand...we have to be aware of these illegal practices.
Thursday, February 9, 2012
Collections of student loans: are we facing a debt bomb?
Student loans amount to about $1 trillion in outstanding debt, and many students are finding they just can't afford to pay them off! A number of sources (just Google "student loan debt bomb") are reporting the default rate on student loans could be the next debt bomb, like mortgage defaults and foreclosures.
Although collectors have take solice in the fact that most student loans are not discharged in bankruptcy of the student, there is a hardship exception, which may be used. Will bankruptcies with hardhip applications be the norm rather than the occasional exception to the rule? That is the talk on the street.
There is talk of federal legislation to allow for a discharge of student loan debt following a five year "good faith" window of opportunity, but that is not likely to pass right now. (H.R. 2028 and S. 1102 are proposed changes to private loan discharges, but neither restore discharge for federal student loans).
Although collectors have take solice in the fact that most student loans are not discharged in bankruptcy of the student, there is a hardship exception, which may be used. Will bankruptcies with hardhip applications be the norm rather than the occasional exception to the rule? That is the talk on the street.
There is talk of federal legislation to allow for a discharge of student loan debt following a five year "good faith" window of opportunity, but that is not likely to pass right now. (H.R. 2028 and S. 1102 are proposed changes to private loan discharges, but neither restore discharge for federal student loans).
Tuesday, January 31, 2012
Collecting Accounts Beyond the Statute of Limitations
A cautionary note: I suggest you Google or otherwise read about the $2.5 million dollar fine imposed on a Michigan debt buyer for failing to tell consumers that on debt past the statute of limitations, the debt is revived by a payment.
Clearly, payment on debts beyond the statute of limitations can be demanded as the money is still due. However, these debts can't be sued on, because each state imposes a statute of limitations, which is simply a "drop dead date" for bringing a collection suit in the courts.
Apparently, and the upshot as of this minute is a bit unclear, collectors CAN demand payment on old debt as long as the consumer paying it is told the debt is beyond the statute of limitations in that state, that a payment will revive that statute, and suit can be brought if a payment is made. Also, some of the articles today on the Internet suggest the debt collector may be limited in reporting the debt to credit reporting agencies.
If you collect past due accounts, which are beyond the statute of limitations, check this out and comply with any new/existing requirements to avoid being charged by the Federal Trade Commission.
By the way, the Michigan debt buyer settled without any admissions of the FTC claims according to articles on the topic....the point of this blog is NOT to toss any stones at this business (which is why I didn't even name the company mentioned in the article), but rather to educate readers of the potential issue the FTC may raise with collections on older accounts, typically consumer accounts.
Clearly, payment on debts beyond the statute of limitations can be demanded as the money is still due. However, these debts can't be sued on, because each state imposes a statute of limitations, which is simply a "drop dead date" for bringing a collection suit in the courts.
Apparently, and the upshot as of this minute is a bit unclear, collectors CAN demand payment on old debt as long as the consumer paying it is told the debt is beyond the statute of limitations in that state, that a payment will revive that statute, and suit can be brought if a payment is made. Also, some of the articles today on the Internet suggest the debt collector may be limited in reporting the debt to credit reporting agencies.
If you collect past due accounts, which are beyond the statute of limitations, check this out and comply with any new/existing requirements to avoid being charged by the Federal Trade Commission.
By the way, the Michigan debt buyer settled without any admissions of the FTC claims according to articles on the topic....the point of this blog is NOT to toss any stones at this business (which is why I didn't even name the company mentioned in the article), but rather to educate readers of the potential issue the FTC may raise with collections on older accounts, typically consumer accounts.
Monday, January 30, 2012
Collections: MERS update
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.
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.
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.
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