Business Debt Collection

We are sometimes asked to assist our business clients with collecting overdue receivables from their customers and clients – typically balances which are over 90 days past due.  A collection case usually goes through several stages, each one ratcheting up the pressure on the delinquent debtor.  These include: Demand letter from client to customer;

  • Telephone follow-up by client to customer;
  • Demand letter from attorney to customer;
  • Initiation of legal proceedings in court against the customer;
  • Entry of monetary judgment;
  • Execution proceedings on the judgment to force the sale of the customer’s property to pay the judgment.

Client Action:   Business clients are encouraged to monitor customer receivables closely.  Any payment that is 60 days past due should be followed up with a client letter to the customer politely demanding payment by a specified date.  A follow-up telephone call within two weeks is recommended if payment is not received.

Attorney Demand Letter:  If the customer has not made payment arrangements following the client action described above, the next step in the collection process would be a letter from an attorney to the delinquent customer demanding payment.  The customer is typically given ten days to contact the attorney to make arrangements for payment.  A fair number of cases are resolved at this stage.

Legal Proceedings:   If demand letters from the client and the attorney prove ineffective, the next step would be the filing of a formal lawsuit in court.  For small cases (under $13,000) these cases can be brought in the local Magisterial District Courts.  Just the filing of a lawsuit will often trigger contact from the delinquent customer seeking to make payment arrangements.  Larger cases would be filed in the County Court of Common Pleas.  Such cases would involve the filing and service of a complaint, discovery (depositions and document requests) and an eventual motion for summary judgment and/or a trial. 

Entry of Judgment:  Collection lawsuits typically result in a judgment against the delinquent customer, either by default or after filing a motion for summary judgment or a trial.  A judgment is a final determination by the court that the amount is due and payable. 

Execution Proceedings:   Once a judgment is obtained execution proceedings on the judgment can be filed requesting that the County Sheriff seize the defaulting customer’s property and list it for Sheriff’s Sale to satisfy the outstanding judgment.  Execution proceedings can also include garnishment of bank accounts and depositions of the defendant to determine the amount and whereabouts of property to satisfy the judgment.  Delinquent customers often refuse to appear for deposition and must be compelled to do so by court order.   A defendant who fails to appear following entry of a court order is subject to potential sanctions, including being taken into custody and jailed for contempt.  On one occasion some years ago I had the dubious pleasure of taking the deposition of a delinquent debtor in a jail cell in the Montgomery County Courthouse.  He was not allowed to leave until he had answered all of the financial inquiries presented seeking the whereabouts of assets to satisfy my client’s judgment. 

The best advice we can offer our business clients is to watch customer payment patterns aggressively to avoid the creation of past due receivables.  Too often we see situations where customer receivables are allowed to drift upward in the hope that the customer will eventually turn things around and  pay.  Hope is rarely a good business plan.  Better to cut off a delinquent customer early and clarify future payment arrangements for continued purchases as soon as possible. 

Other options to consider include recording UCC-1 Financing Statements on your customer’s inventory, which would allow you to take back unsold inventory if you are not paid.  Letters of credit and mortgages can also be used as security, along with cash prepayments.  C.O.D. sales can be utilized to allow continuing future sales while a delinquent customer works out his past due balance.

Feel free to give us a call if we can assist you in this area.   Our goal is to ensure that our clients are paid in a timely fashion!

– Kevin Palmer


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