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Protecting Your Business in Commercial Collections

  • Written by T. Steel Rose

Collecting and taking legal action against a business in commercial collections is best done when numerous steps have been taken prior. These steps include sound contracts, terms and clear expectations. Proceedings can be costly if one of these steps was neglected. Collection Advisor talked to Bob Ingold, president of Commercial Collection Corporation of New York, about what commercial collection agencies should be doing to protect themselves and their clients.

What does an account need to be bullet proof collectable from the agreement to the invoice to the late payment penalty to the interest charged?

If only credit extension was bullet proof. The best laid decisions today can go haywire tomorrow. Circumstances beyond your customer’s control affect the best-laid plans: health, loss of key customer or weather (think Hurricane Katrina). Certainly there are conditions that can be created to aid the decision: check credit, obtaining a good credit application, being specific as to terms or obtaining a personal guarantee if possible. Some companies use discounts for prompt payment and certainly enforce late charges and collection fees. These add-ons must be spelled out before the transaction takes place to be enforceable. Early and frequent collections will go a long way towards a satisfactory payment.

What are the steps necessary to properly invoice and proceed when the account becomes one day late according to the terms?

Early warning and early action will help bring about a good payment result. Before the sale, be sure to spell out your terms. Reinforce those terms when invoicing the transaction and when default occurs make immediate contact advising of your company’s expectation of payment. The Commercial Law League of America has published a chart of collection results and the earlier the collection activity, the higher probability of collection. It just takes good common sense and early follow-up.

What are the best procedures to require the account pays for the collection charge?

Again, there is no magic bullet to insure collection of any collection fees but clear understanding of your terms enable the customer to understand your expectations early on. We suggest a clear credit application that spells out collection fee enforcement. Upon first sale, send a letter to the buyer spelling out your terms. Having terms and conditions on your invoices as well as statements help to define your expectations and finally enlisting the help of sales to explain what corporate credit requirements are adds to the certainty of your terms. Collection agencies and attorneys will insist on collecting fees when there is a signed agreement prior to the transaction.

What states have limitations on the collection of commercial debt?

All states allow the collection of commercial debt. Some states require a collection agency to be licensed in that state (21 to be exact) if they attempt collection but they are not limited to collection as long as they adhere to the rules of good conduct expected of all debt collectors.

How do you proceed if a small corporation officer guaranteed the debt considering the consumer debt collection compliance rules?

The presence of a personal guarantee of a commercial debt does not shift the debt under the FDCPA. It is still a commercial transaction and treated as such. All our communications are careful to include mini Miranda wording however as we sometimes back into a consumer transaction without knowledge.

If the account says, “Sue me!”, what is the next step?

Often times in the heat of the discussion the debtor will say, “Sue me,” but that doesn’t always ring true. We try to present them with a different collector, different scenario, change the tenor of the discussion so it is less confrontational and see if there is a solution. If the debtor really means it, we make our recommendations to the client based on balance, our assessment of collectability and cost. It is always the creditor’s decision to proceed.

What steps and financial expense can be expected when a lawsuit is filed?

Filing a lawsuit is never cheap or quick. Every jurisdiction is different but the court costs can be from $250 - $800 depending on the location. Once a file is approved for suit the costs go up dramatically and contingent fees can be from 35 - 40% of the balance. The legal complaints need to be filed, affidavits completed, service perfected and time to appear adds to the delay. If a countersuit is filed, attorneys consider it a separate lawsuit and charge hourly for defense. The best settlement is prior to suit.

What are settlement possibilities at the various stages of a lawsuit from depositions to arriving for trial?

Settlement is always possible. As the debtor gets closer to trial they may be more motivated to settle but clients motivation may be less. Many years ago at Chase Manhattan I learned the best settlement is usually the first and earliest. A lot of time and money go into the collection process that could be reduced if both parties are motivated to make the suit go away.

Principles come with a cost! What is the success rate of various procedures in different states based on creditor versus consumer-friendly rules for commercial debt?

Again, collection is greater the earlier the action is started. Once a judgment is obtained the attorney may file bank attachments (back to the credit information, source of information), seizure of unsecured property and liens against property which are a few of the more successful forms of execution to collect. Collection occurs when the creditor is in the front of claims, not at the end. Early placement and early legal action bring about successful collection.