The Importance of Giving Credit for Payments in Debt Collection Cases

Image of a calculator and invoice to represent giving credit for debt collection payments.The importance of giving credit for payments made can not be overemphasized when it comes to debt collection. The improper allocation of credits and payments will directly affect your claim and recovery.

Failing to give credit for payments when credits are due will extend the life of your debt collection case. It can also, in some instances, cause you to forego recovery of your NY debt collection claim.

Vacating a Judgment for Failing to Apply Credits for Payments

A client asked that we assist them in lifting restraints placed against their bank accounts due to judgments entered against them. The client’s “meritorious defense” was that the balances claimed due and owing by the creditor were incorrect. The client was able to produce copies of payments they had not received credit for before the judgment was entered against them.

The client’s ability to produce these payments and raise an issue to the court of the creditor’s accounting practices and validity of the calculation of the balance as claimed in the judgment was sufficient. This coupled with the fact that they claimed they were not served with the summons and complaint was enough to lift the restraint and vacate the judgment.

Vacating a judgment or calling into question of the validity of a judgment could also come into play even if you sued the client for the correct amount but failed to give credit for any payments received after the summons was served and not credited before judgment was entered.

Defeating Summary Judgment

Discrepancies in your accounting of client’s payments can lead to an “issue of fact” causing you to lose the opportunity for judgment without the need for trial and possibly even discovery.

If your debt collection case is being defended, a good way to move the case forward is by making an application to the court for a judgment. Summary judgment is available to creditors who can show the court that the facts are not disputed i.e. the goods were sold at an agreed price of $100,000.00, they were delivered to the customer and the customer failed to pay. Bogus defenses filed by the customer will fall away because they are just that, bogus. There is no evidence to prove their existence.

That being said, if the customer can call into question the client’s accounting practice (i.e. that credit for payments were not properly applied), the court will deny the application for summary judgment, finding an issue of fact.

Rather than winning their case through summary judgment, the client’s case will need to go to trial all because of the client’s failure to allocate proper credit. Since time is of the essence in debt collection, an undue delay will impact recovery.

There are many other scenarios where a client’s inadvertently misapplied credit is called into question. A client’s poor recordkeeping can cause the client to forego the collection of their debt. Although written for the accounting industry, our post, Are Your Billing Practices Risking The Future of Your Firm, applies to all businesses.

If you need assistance with your policies and procedures or need assistance collecting monies owed, contact Frank, Frank, Goldstein and Nager.