Companies that grow by acquisition are often faced with challenges when taking a deep dive into recently acquired new customer accounts. Although acquisitions can increase your customer base, new client relationships don’t always go as anticipated. The predecessor company had a history–maintaining customer accounts with previously established patterns of doing business, deliverables, and customer payment schedules.
That can be especially true when it comes to collecting accounts receivables. The acquiring company may quickly discover existing issues that may prevent them from collecting receivables in part or in whole. As such, before making the acquisition, the acquiring company should question the value of the receivables as an asset and whether they will be able to collect the receivables.
To help you anticipate potential issues, we gathered some experiences our clients faced when attempting to collect the receivables of companies they acquired.
Non-Assignment of Contract Without Permission
Most companies operate pursuant to an underlying agreement the terms of the agreement control. A common term is a non-assignability clause, which requires one or more parties to agree to have the contract assigned to another.
If customer approval is needed, you or your predecessor should obtain it immediately.
Assumption of Liabilities and Pending or Contingent Litigation–Offsets and Counterclaim
There are times when a customer may claim they are entitled to credits or an offset in payment for work not performed or improperly performed. These types of liabilities are generally not entered into the books and are often surprises.
Poor Performance or Negligent Performance
Customers may claim that your predecessor failed to perform as promised. Your predecessor may have started the engagement and failed to finish. Or, if they had completed, there may have been issues considered ”usual and customary” but used by the customer as a reason for non-payment.
Improper Billing
Improper billing is very common across all industries–whether it’s medical, construction, insurance, or other. Customers can have very specific rules for billing as a requirement for payment. Missed deadlines or failure to submit requisite forms could lead to only partial payment.
Overbilling
The receivable may be a result of double billing or billing for work not performed.
Were the services rendered Outside the scope of the agreement? You may not be precluded from recovery but will have a harder time collecting.
Case Without Merit
If the documentation and/or personal testimonial does not support the claim for monies owed, you will not be able to prove your case to get paid.
Fee Dispute Resolution Clause Provides for Costly Process and Procedures
The underlying agreement provides for costly processes and procedures to collect the debt. Although debt collection counsel will handle on a contingency fee, the underlying agreement calls for mediation and/or arbitration. And, the party seeking to get paid must outlay sometimes thousands to the administrative body to process the case.
Improper Licensing
You may find that the acquired company failed to have the requisite licenses or comply with local rules and laws. As such, unless the debtor agrees, you could not maintain an action to recover for the goods and/or services.
Bad Accounts Receivable
The receivables are just bad. The clients are out of business, judgment proof.
Bad Record Keeping
The company was bad at record keeping. Work performed was poorly documented, records were not kept in the ordinary course of business and/or there was no one to authenticate any existing records.
If you are looking to collect monies owed to your business, contact Frank, Frank, Goldstein and Nager for a consultation. We have the experience that pays.
