In the last several issues, we have commented upon the increasing importance of monitoring closely your receivables, looking for slow payment trends and other indicators that the customer may be getting behind in payment. With virtually all of the leading economic indicators being flat or negative, it is no surprise that lawyers are witnessing a substantial increase in the number of collection matters they are handling.
One of the most important weapons in any successful collection case is speed. In most cases, debtors have a finite amount of assets and multiple creditors competing for them. The old adage that says that the “squeaky wheel gets the oil” could not be more true. The longer you wait to take action to recover overdue balances, the more time your debtor has to pay some other creditor who is screaming louder.
Several attorneys here at the firm do commercial collection work, and we pride ourselves in acting promptly and aggressively to recover overdue amounts. Here are some guidelines we recommend to minimize your exposure to bad debts:
- Monitor your receivables closely for trends in slowing payment, even from good customers. Slower payments are usually a sign that your customer is not receiving payment from his customers, which demonstrates the “ripple effect” that slow payment can have.
- Don’t be bashful about insisting on prompt payment. Some businesses fear losing customers if they push too hard for prompt payment. In our experience, this risk is minimal when compared to the risk of allowing the customer to become hopelessly mired in debt.
- Businesses that sell on credit should consider switching a customer to “C.O.D.” until an overdue account is brought current.
- Consider offering discounts for prompt payment. Two percent to five percent off for payment within ten days is not uncommon.
- For businesses that sell to customers who maintain inventory, consider obtaining a security interest in the customer’s inventory so that it can be repossessed if payment is not made. A purchase money security interest can be obtained in goods sold to a customer even if the customer has a blanket UCC filing in favor of another creditor against its inventory. We can assist you here.
If all else fails, we are here to help you collect what is rightfully yours. Our goal is to move swiftly and aggressively to ensure that maximum recovery can be achieved. With proper planning, close monitoring, and prompt action in the event of default, you can maximize your chances of being paid.
— Kevin Palmer