An issue that comes up time and time again in debt collection settlements is whether parties can continue doing business together even though the creditor has placed the account for collection. If so, can a settlement agreement anticipate and include future deals?
It happens more often than you would think. There are parties who enjoy a mutually profitable relationship before the non-payment of a receivable. Forced to collect, the creditor, whether directly or by virtue of their credit insurance policy, had no choice but to report and pursue payment of the debt.
Now that a debt collection attorney is involved, can the parties move forward and conduct new business?
If desired, the parties can do new business with one another.
In fact, sometimes it happens that the non-paying customer insists the parties transact new business with each other. This happens with clients in all industries, but we find it especially common in specialty chemical clients in situations where the debtors rely on the products they’ve been cut off from due to non-payment.
The debtor may allege their business can not survive without the creditor’s product. Without transacting new business, the debtor would be unable to make payments on the aged receivable or future sales of the product.
Including Terms for Future Deals
Aside from the issue of doing business with a past non-payer and the creditor’s credit policy, can the new deal be incorporated into an agreement that addresses settling the old receivable?
Yes, definitely. Terms may be included and protection offered in a stipulation of settlement supplemented by a confession of judgment, UCCs, and the like to address old balances and new business.
Take the specialty chemical manufacturing client and their nonpaying client. The creditor made the decision that despite the aged receivable and the ensuing litigation that the relationship was and could still be profitable. Supplying the debtor was the right decision for them.
We were able to prepare an agreement which:
- Allowed the client to bypass their agreement and the need to expend fees and costs to pursue arbitration (required in the event of a fee dispute)
- Resolved the claim placed for collection by incorporating terms of repayment: a payment schedule for the aged receivable, with an outcome favorable to the client in the event payment(s) were missed
- Provided terms of a new transaction(s) in the agreement. In this instance, because only a 50% deposit was being paid on the new goods, the remaining 50% was payable net 30 days. Since the underlying claim placed with Frank, Frank, Goldstein & Nager did not include or anticipate the additional sale(s), we were able to obtain and file UCC financing statements on the purchaser’s inventory and by working with collection counsel in the debtor’s state, have executed their states’ equivalent of a confession of judgment.
The client and their customer were both pleased with the outcome. Each got what they wanted.
Although doing “new business” with a delinquent customer is not right for every creditor, it’s good to know that you can. Frank, Frank, Goldstein & Nager has the experience to help you navigate debt collection settlements and more. To learn more, contact us for a free consultation.
