What Can You Expect When You Instruct Your Collection Agency to ‘Go Legal’ Against Your Former Customer, by Sam Fensterstock

Let’s say that you have placed your former customer for collection and your agency demands, as well as the local attorney, demands have not been successful. Your agency along with your attorney believe that litigation is your only option in hopes of being paid, provided that the amount due falls above your suit parameters. Had the former customer filed for bankruptcy, you can forget about a lawsuit and write off the receivable. In this situation, if you want to have any chance of collecting, your agency along with your attorney will review all documentation supplied along with a review of their internal efforts and investigation and make a recommendation to you regarding the filing of a lawsuit in the debtor’s locale.

SOME THINGS TO CONSIDER BEFORE FILING

Upon agreeing to litigate, your agency will then provide your attorney all of the information they have on your claim including amount due, principal and interest; debtor’s contact and phone number; nature of your business; details of any dispute and creditor’s response with copies of memos and correspondence. Additionally, they will provide the attorney with any documentation they have including: credit agreement; contracts, leases, personal guarantees, promissory notes, and NSF checks; purchase orders, delivery receipts, invoices, and statements of account; etc. The attorney will use this information during the legal demand process to try to bring the debtor to the table as well as use to substantiate their pleadings if suit is filed.

If the attorney has exhausted all their demands with no positive result, the next step is to consider a lawsuit. Before bringing a lawsuit, you want to be very sure that you have a good chance of winning. It is going to cost you some upfront money to file a lawsuit, and it would be silly to spend it if the debtor is out of business and you have no personal guarantee or if it is a highly contested debt and debtor has a good chance of successfully defending it. If you are going to file a lawsuit, you need to determine whether any of the following debtor defenses are possible:

• Could the debtor claim a prior payment?
• Is the amount due an offset?
• Does the debtor have a basis for a counterclaim?
• Is the debtor disputing the balance and has documentation to back it up?
• Is payment barred by the statute of limitations?
• Were the goods and/or services provided deemed inferior by the debtor?

If any of these defenses, and there are more, is possible then you may want to think twice before filing a lawsuit, because if you have to go to court the suit may become expensive, and there is a chance you might lose, thereby increasing your cost with no reward. Also remember, having a personal guarantee always helps. Furthermore, if a defense is expected, can you supply a witness at trial? Keep in mind the expense of travel as well as time your witness may need to be deposed or attend and testify at trial.

Many times a lawsuit will bring your debtor to the table to negotiate a payout or settlement. Also, keep in mind that at any time during the process, the debtor can file bankruptcy, which will immediately halt any legal proceedings or they can simply go out of business.

COURT COSTS AND FEES

Your agency will provide you with the attorney’s contingent fee requirement as well as any non-contingent fee requirement.

Court Costs

Filing a lawsuit costs money. Included in the suit costs will be:

• The cost of filing a summons and complaint

• The cost of serving the debtor

• Costs for various required attorney actions during the course of the lawsuit.

The attorney will require, in advance, their estimated costs for filing a suit and obtaining a judgment. The amount required will vary based upon jurisdiction and the venue where the lawsuit is filed. In addition, these fees are not negotiable as these costs are set by the courts.

These costs, however, most times are non-contingent and may not be lost. If you win, the court costs in connection with the lawsuit may be recovered from the debtor and you are entitled to a full return of the costs advanced if the debtor is required to pay costs as part of the judgment. .

Attorney Suit Fees

Essentially, these fall into two classes –contingent and non-contingent. Contingent suite fees, i.e., a fee based on the amount of the account as well as the amount collected. In addition to the contingency fees already applied to any monies collected, suit fees may also be charged. In essence, the suit fee is an additional fee the attorney earns for filing suit, no matter if you are successful in collecting.

The attorney may require a non-contingent fee to handle the case. This is a portion of the fee which attorney will earn upon the filing of suit. The non-contingent suit fees be applied towards the total suit fee the attorney earns which normally does not exceed a total of 10%.

HOW LONG WILL THE AVERAGE CASE TAKE?

If everything goes the attorney’s way and you get a default or no acceptable defense judgment, you can figure on six to nine months. However, every case is different and if the debtor puts up a fight it could take several years before a resolution is reached. The “wheels of justice move slowly” and creditors right litigation is no different.

COLLECTING A JUDGMENT

You have won your case and received a judgement from the court against your former customer, now all you have to do is collect the money due. If the debtor is located in the jurisdiction that the suit was filed then garnishments, marshal/sheriff levies, i.e., direct action against the debtor is possible. However, collecting a judgement can be a complicated matter. The lawsuit should always be filed in the jurisdiction where the debtors and their assets are located. Using a national agency that has the experience as well as database of local attorneys who specialize in collection litigation is a plus. A national collection agency has highly trained staff members who are familiar with the various laws of each state and their expertise affords them the opportunity to “quarterback” your attorney. Their goal is the same as yours, to conclude the matter as quickly and professionally as possible and maximize the money that is recovered. Some of the benefits of using your agency to handle your lawsuits:

• The agency can employ local attorneys who are bonded and insured to move the case as quickly and expeditiously as the local courts will allow.

• The agency can act as an effective conduit between you and the local attorney, thereby collecting the maximum amount in the shortest possible time while protecting your interests.

• The agency has more expertise, in collecting debtor judgments, in terms of volume of accounts and trained and available staff than any law firm. It is their business and their only business.

CONCLUSION

In the event that an account that you submit to your collection agency winds up with an attorney for litigation, before filing a lawsuit, carefully evaluate your chances of winning before you throw good money after bad. However, many times a lawsuit is your best and only chance of collecting.
Sam Fensterstock is Senior Vice President, Business Development, for AGA, a leading commercial collection agency based in Melville, NY. He can be reached at (631) 425-8800 or samf@agaltd.com.

New AnscersX Enhancements Give Credit Managers a Better Understanding of Their Customers, by Teresa Campos

anscersxIt’s been more than a year since the launch of the anscersX multibureau trade credit report, which offers credit managers a one-click look at credit scores of their customers from the three major credit reporting bureaus. Since the report was launched, we’ve listened to our users and are proud to announce some valuable additions to the report aimed at helping you make quick and well-informed credit decisions.

The improved report includes more flexibility for you to choose the data you need and the price you will pay. It is now up to you to select data from one, two, or all three of the bureaus included in the anscersX Report (Dun and Bradstreet, Equifax and Experian).

We have added valuable information from Equifax including:

  • The Ultimate Parent
  • Headquarters Site information
  • Alternate Company Names & DBA’s
  • Owner/Guarantor
  • An easy to read Average Days Beyond Terms graph
  • Additional Report Highlights (# of accounts, # of delinquencies, charge offs and more

We have added valuable information from Experian including:

  • Years in File
  • The Date of Incorporation
  • SIC Code
  • An Industry Risk Comparison

anscersX pricing, which ranges from $32.35 to $69.95 depending on the combination of bureaus you choose, is a truly unique product that paints a true picture of your customers to help you better manage risk.

For those who would like to learn more about anscersX, I invite you to participate in an upcoming webinar exploring the anscersX report citing specific examples from the report. You can register here.

To download a sample report, visit www.anscers.com or contact me directly if you have any questions at 818-972-5361.

Do’s and Don’ts Guidelines of Responding to Credit Inquiries, by Michael Dennis

Michael Dennis
Michael Dennis

Creditors are frequently asked to provide credit references. Doing so correctly protects customer as well as the creditor. The following are some do’s and don’ts guidelines for the exchange of credit information:

  • Don’t share anything except factual information [data you can prove is correct]
  • Never ever discuss your future intentions, and don’t ask about the future intentions of anyone else
  • Don’t ask for advice about how to deal with a customer
  • Never offer advice of another creditor
  • Don’t discuss your terms of sale, or ask other creditors to discuss their terms of sale
  • Never reveal the source of credit information

These guidelines are for the protection of all creditors and should be adhered to at all times.  Are you compliant with these rules?  I welcome your comments.

Michael C. Dennis is the author of the Encyclopedia of Credit, a free, fast, internet resource for credit and collection professionals. He is a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com. He can be contacted at 408-204-0129.

CMA Reacts to Obama’s Efforts to Help Small Businesses

On Wednesday, President Obama announced that his administration will now focus efforts on giving small businesses greater access to loans from local banks.  This matters to CMA because most of our members would be categorized as small businesses under the definition used by the Obama Administration. Many CMA members have reported experiencing a combination of slow sales and slowing payments from current customers, which has created a greater need for working capital to maintain operations. In our Los Angeles Business Journal editorial this summer, CMA advocated that policy leaders in Sacramento and Washington, DC focus more attention on helping trade creditors (many of whom are small businesses) gain access to bank credit as a stop gap for their working capital needs. Wednesday’s pronouncement seems to support this plea, but yesterday on the KNX 1070 News Hour, I expressed concern that this new policy would not be enacted fast enough to help our members and their customers in time to keep their doors open and business credit flowing. My comments appear during the last five minutes of the hour long broadcast, go to KNX Business Hour 10.22.2009 and fast-forward to the end of the program.

Numerous news outlets have covered the story (Google search: Obama to help small businesses), but I have included links to stories/editorials from local papers in California and Nevada (see below). The Las Vegas Sun editorial offers the caveat: “As Congress considers the proposals, though, it should make sure the lending programs are as transparent as possible so the public can see evidence that small businesses are being helped.” I agree, and to that end, I will be following this story through the media and through members that directly benefit from this new program. If this program could help your company borrow needed working capital and you would like us to follow your efforts to secure loans from local banks under this program, please email me at mmitchell@emailcma.org.

Related articles/editorials:

Los Angeles Times: Community banks to get bailout money as Obama seeks to boost small business

San Francisco Examiner: Obama refocuses bailout on small businesses

Las Vegas Sun (editorial): Lending a helping hand

Mike Mitchell, CAE
President & CEO

Street Credit – How To Survive 2009

Author: Michael Mitchell, CAE – CMA President

Recently I attended a meeting of the Los Angeles Bankruptcy Forum (a quarterly event that CMA administers) and the guest speaker was Congressman Richard Gephardt. As a former Speaker of the House, he offered many insights about the current financial crisis and the stimulus package that has since been signed by President Obama. One of the most memorable moments for me was the way he put our economic situation into perspective. From his position on the Board of U.S. Steel, he bore witness to the historic performance of the first three quarters of 2008, which were the best in 100 years; only to witness the last quarter of 2008, which was the worst in 100 years. Around the middle of last September, for U.S. Steel and many companies throughout the U.S., the economy just stopped.

This was another sobering addition to the myriad of stories that have already been told and written about the global economic crisis, with much of the news focused on how the financial crisis has affected Wall Street. I think it is important for CMA to focus on how the economy is affecting Main Street companies that grant commercial credit and the impact on how credit professionals make credit decisions and manage business relationships with their customers. If any of the following anecdotes from member service calls, credit group meetings, networking events, and the anscers Community Bulletin Board sound familiar, let it be a reminder that you are not alone.

At CMA, we have seen a significant increase in the number of bankruptcy filings by our members’ customers, and unfortunately, even by our members themselves. Credit group meetings now begin with members reporting layoffs at their customers’ companies and at their own companies, followed up with inquiries about available job openings. In the face of staff reductions, travel freezes, and other cost-cutting measures, credit managers are struggling to deal with a sudden and significant increase in the number of customers whose payments are slowing and who are not responding to calls – in fact, too many for the credit managers to visit personally (even if they could afford to travel). Solid customers are slowing, receivables are aging across the board, and the Association is fielding an ever increasing volume of calls from members asking about various forms of credit protection and advice about dealing with bankrupt debtors.

One effective approach to slowing payments came from a credit manager in one of my industry credit groups. I call it the pre-emptive strike. Recognizing that her aging was beginning to stretch out further and further, the credit manager began calling on accounts just before the terms were up to remind customers that current balances were due in a few days. She reported that this helped her identify (and in many cases avoid) deliquencies early so that action could be taken before the accounts got too old. She claimed that most of her customer did not have a problem with this approach because they understood that this is a sign of the times and recognize that cash flow is critical for everyone right now.

Members that supply materials and labor to the construction industry have reported to us that they are no longer stratifying the jobs they prelim – they are issuing preliminary notices on all jobs no matter how secure or how small. We have received an increasing number of inquires from materials suppliers that are looking at construction lien law for the first time because the risk of default has increased dramatically in the construction industry.

So what else are CMA members doing to survive 2009 in the face of these formidable challenges? Here’s the word on the street:

  • Update all credit applications over a year old

  • Re-evaluate all customers and readjust credit lines according to recent changes in payment habits

  • Periodically deactivate customers that have not made any purchases for a year

  • Reduce credit lines for customers that had large projects in the past but have drastically reduced purchases

  • Reduce credit lines on customers who are making installment payments on account balances that are much less than the full credit line

  • Conduct daily reviews of all customers that are over their credit limits

  • If a credit line has to be adjusted down, send a letter to the customer advising the customer of the reason for the adjustment

  • Reduce customer orders to use as leverage for payment

  • Let slow-paying and unresponsive customers know that you are reporting your third party collection placements to the national credit reporting bureaus (Experian, D&B, and Equifax), which may affect a company’s existing credit lines with the bank

  • File more UCCs

  • Look for “red flags” like customers who stopped buying from you and now are suddenly anxious to buy from you again on terms – did they exhaust their credit with your competitors?

  • Consider whether disgruntled employees and staff reductions are signs that your customers are becoming unstable

Although there are many differences of opinion as to the best ways to approach credit and customer relations in this risky environment, everyone I talked to agreed on one thing, that this is a debtor’s market, and creditors have to do whatever they can to keep the cash flowing.