“What we’re finding is much fewer of our customers that fail to pay… go running to the bankruptcy court,” said Scott Blakeley, Esq. in a recent NACM Teleconference titled “Collecting on Your Delinquent Account: Litigation Strategy for the Credit Professional.”
Blakeley noted that after the October 17, 2005 passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) “more of our customers… are looking to alternatives to deal with their delinquent vendor accounts.” Blakeley added that the BAPCPA placed greater constraints on the debtor and left fewer assets available for repayment. “It’s prompting people to stay out of bankruptcy,” he said.
The first step toward collecting a delinquent account is to know exactly when you have one on your hands. “If we have a customer who fails to pay according to [our agreement], that constitutes a delinquent account,” said Blakeley. However, a customer’s delinquent status may not be as easy to decipher as this definition would imply.
Blakeley noted that some customers agree to a vendor’s credit terms while making payment according to their own. To prevent this, Blakeley suggested that it be clearly stipulated in your invoice or credit application that your terms are the ones to be followed, not the customers. This precludes any argument about when a customer is delinquent and can also provide for easier payment should you take the customer to court.
There are also situations where a credit extending company may allow a customer to pay beyond terms in the ordinary course of business. However, Blakeley warned that companies should be careful when choosing to do this. “Under Article 2 of the Uniform Commercial Code (UCC), this relaxing of invoice terms may qualify as new terms,” said Blakeley. “One needs to look at the payment history.”
When working to collect on a delinquent account, there are a number of methods, Blakeley said, that don’t involve bankruptcy, including arbitration, mediation, repayment agreements, where a customer agrees to pay the account off over time and, finally, litigation.
Arbitration and mediation are similar in that they attempt to resolve disputes with customers without the vendor filing a lawsuit. Binding arbitration is a formal collection process that doesn’t conform to the legal rules of evidence, said Blakeley. “It does require the customer to promptly deal with this delinquent account,” he added. “Arbitration can move rather quickly.” Like other options, arbitration can be invoked when it is included in the terms of sale and the customer agrees to said terms. Mediation is a more informal process where a mediator is hired and leads both parties to a resolution through negotiations.
Litigation is the most well known option of collection but Blakeley stressed the importance of being prepared before entering the courtroom by knowing who is liable for the debt and by having all your documents in order. “Documents must be preserved… if we feel we’re going to be in litigation with this customer,” said Blakeley.
Blakeley and fellow firm member, Bradley Blakeley, Esq., also took question from attendees and discussed the intricacies of legal filings. For more information on NACM’s Teleconference series, visit the association’s website at www.nacm.org. The next teleconference, titled “Credit Card Processing” and led by Robert Day, will be held on January 10, 2007.
Source: Jacob Barron, NACM Staff Writer, Bradley and Scott Blakeley, Esq.