1. How Much is Really Owed?
Some companies amass very large receivables over a short period of time. Some companies perform multiple low cost services over a period of a year. So how much is really owed? Are there multiple invoices for multiple goods or services regarding this single debtor? It is always best to take a macro view of the accounts receivable and the receivable history of the debtor. Time may generate payment.
2. What are the Habits Regarding Receivables?
If you always allow ABC Company to pay on a ninety (90) day basis, then don’t get upset when the invoice isn’t paid in thirty (30) days. If you always give Joe Smith a ten percent (10%) discount so that he will pay his bill, then don’t get mad when Joe continually asks for an offset. Do you have bad habits regarding slow pays and offsets? Don’t fall into the trap that many companies fall into – – I would rather have eighty percent (80%) of something rather than one hundred percent (100%) of nothing. If you provide a good or service at a fair price, provide good customer service and are honest with your customers, don’t feel guilty for asking what is owed. If you want to generate cash flow, you must crack down on your bad habits regarding receivables.
3. Have I Identified the Industry Customs and Personalities?
It is important to consider your relationship with the debtor, industry customs, business practices and business longevity. There are companies out that there that will not pay an account payable prior to one hundred twenty (120) days. There are individuals out there that will not pay an invoice unless a phone call is made after the invoice is sent out. These facts must be considered.
4. What is the Strength of the Claim?
Look inwardly and discovery the weakest link in your claim. Did full performance occur? Did you provide substandard performance and are now expecting payment in full? Is there a written contract? Was there a verbal agreement? Is a counterclaim likely? Ask hard questions and get the answers before you get on the litigation path. Don’t let your grandiose position in the industry blind you from the specific facts of this particular case.
5. What is the Financial Condition of the Debtor?
Has this debtor consistently paid its bills in the past? Is this debtor encountering specific problems within a specific industry? Has bankruptcy been filed or is about to be filed? A debtor that has not paid a past due receivable may not want to pay or may not have the ability to pay. Figure out if there is a nexus between the financial condition of the debtor and the unpaid receivable. If the debtor is flush with cash and is ignoring your e-mails, then it may be time to ramp it up. If the debtor is about to file bankruptcy in the next ninety (90) days, it may be best to refrain from accepting any money so that a preference action will not materialize in the future. Remember, collection begins with communication and information.
6. What are the Costs?
What will the costs be? If it costs a business $3,000 to collect a $4,000 debt, then the cost-benefit of the collection needs to be considered. Principle costs money. It is always easier to justify the expenditures on a $100,000 debt over a $5,000 debt.
7. Resolution, When?
Will collection occur before or after a lawsuit is filed? Can the litigation be resolved at summary judgment or is this case heading for trial? Will resolution ever occur? Look down the long road and consult with counsel.
8. Have I Considered the Post-Judgment Reality?
Are there assets to attach? Are there assets to garnish? Will a writ of execution generate a result? Should you request that a receiver be appointed? Will a turnover order help you recover assets? What do you expect to find during post-judgment discovery? These questions need to be analyzed and answered before suit is filed.
This article is for informational purposes only and is not intended to be a substitute for legal advice. Specific questions and circumstances regarding the issues addressed in this article should be individually discussed with legal counsel.
Adams, Lynch & Loftin, P.C.