If we have difficulty obtaining a judgment and/or proving a collection case, it’s often because of an incomplete or incorrect record. Plan for a clean debt collection case from the start to improve your odds of winning. Winning on documentation is not possible if all is not in order. For example, the party billed is not the liable party or is not the correct party. That is why it is imperative that everything is set up properly and the complete and accurate invoices and statements are sent to the correct party or parties every time.
Work Backward to Guarantee a Clean Debt Collection Case
Set up the account as if you will have to bring a nonpayment case against the account. Anticipate the need to prove your case at or before trial. Be ready with the documentation the court will require to support your application for a judgment.
Begin at time of sale with the account setup. The person who makes the sale and/or the one responsible for intake must make sure that the customer’s correct name(s), corporate or otherwise, are accurate and as they appear on the business license or other official identifier. Record tax identification numbers for the company itself and any registered DBAs.
If the customer has more than one entity at the location and is using the corporations interchangeably, make sure all the entities appear in all billings. Do not abbreviate. Address the engagement letter and/or proposal to all entities and each of the entities must sign. This will make it difficult for the customer to escape liability by having you do business with an empty shell, which makes you work harder and longer to collect your money if you ever do.
Particularly with billing documents or statements of account, never shorten the name of the entity or entities being billed. You would never want them to be able to say they did not receive proper and timely notice.
Set Up a Credit Policy and a Collection Policy
You should set up a credit policy. The credit policy should include prescreening and require the prospect’s signature on credit documents. Always verify information the client supplied for the extension of credit to facilitate collection should the account go sour.
Consider including in your credit application:
- Customer’s verified legal name
- DBA(s) verified legal name(s)
- Tax ID whether federal tax number or Social Security number
- Joint and several liabilities clause
Have a collection policy that incorporates all remedies and tools available for your type of business. Have a collection vendor with a network of respected professionals in place that can support your efforts.
Statement of Account
The statement of account you send to the client is necessary to support your case. You can win a debt collection claim based on an account stated. That is, of course, if you sent a statement of account to the customer. You must send the statement of account to all those you held liable for the debt.
Selling to an agent rather than the principal
What if you are selling to an agent rather than directly to the principal? That’s frequently the case in New York where someone other than the owner manages most residential and commercial buildings. In such cases, we suggest listing not only the real estate owner on all invoices, statements, etc. but the managing agent as well.
Collecting Bad Debt – How and Where
Figure out what makes financial sense for collection. Do the balances and type of debt warrant mediation, arbitration or litigation if demand is not productive? Identify what is most cost effective and will provide the best rate of collection for the lowest cost.
Where should you bring the litigation, arbitration or mediation? Which venue is friendliest to you? If you are a Delaware corporation, New York state laws may be friendliest to you as a corporation. New York law applies even if the case will be heard in Delaware. There are consequences of applying the laws of a different state – understand them.
Whether you want to set up a sensible credit policy or you have receivables that need the attention of seasoned professionals, we are here to answer your questions. Contact firstname.lastname@example.org or call 212-686-0100.