Unfortunately, every now and then we all have to deal with a person or entity who shirks their financial obligations. There are many reasons why companies fail to pay their obligations when they are due. Sometimes those companies are in serious financial trouble, and simply can’t pay their bills. Other times, more sinister intentions may be at work, and someone is using your hard earned money to finance their company.
Do you think one of the networks or perhaps an emailer is using your money to finance their business? When a company puts off paying your “net 30” account for 90 or 120 days, it simply means that at best, you’re making an interest-free loan to them. Lending money on zero interest is not a good business model. And if you end up completely unable to collect, now you’ve simply given them your money.
When a network or emailer is squeezing extra weeks or months out of their payables at your expense, developing an efficient and effective debt collection system is important to your survival. Even the most reliable payers may hit cash flow troubles and you need to be ready to react.
Unfortunately, the fear of making waves with those who write your checks keeps many otherwise intelligent business people from making prudent decisions. But companies may unintentionally enter the lending business when they are hesitant to push for collection out of concern that they will damage a once profitable relationship
Because this is a reasonable concern, you should have a debt collection process in place before problems arise.
According to the SBA, there are three phases to any successful debt collection program:
“Phase # 1: Prevent collectibles from becoming overdue.
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Review your customer accounts each month to quickly identify those that are occasionally, or even chronically, late.
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When you notice that an account is overdue, make sure the company was billed, the goods went out, and no problems arose when the order arrived.
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Send out invoices the day shipment is made or the services are completed. Many businesses unwittingly create their own cash flow problems by not mailing invoices for a week or two.
Phase # 2: Collect overdue accounts before they are seriously late.
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Phone calls have proven significantly more effective than letters, particularly if you make a point of calling customers about outstanding invoices within a day or two of their becoming overdue.
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Make phone calls or send out reminders twice a month, rather than every 30 days. Although it costs more, you definitely get a lot more back.
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Blame your CPA, your business manager, or even your mother-in-law, but stop giving credit to debtors who are overdue. Say, for example: "I hate doing this, but our president insists that once accounts are overdue by 90 days, all orders have to be C.O.D. As soon as you pay off some of this overdue amount I can give you credit again, but until then my hands are completely tied."
Phase # 3: Collect delinquent accounts or cut your losses.
- When it’s clear that the customer won’t pay without a significant change in circumstances, you must decide if the account is worth any more of your time and resources. It’s not uncommon for business owners to get so angry at not being paid that they become determined not to let the debtor off the hook. Don’t let your emotions block an objective assessment of whether it’s worthwhile to continue your collection efforts
- The simplest way to apply legal pressure on a debtor is to file in Small Claims Court (SCC). The amount you can sue for in SCC varies depending on where you live. It may be as little as $1,000 (Kansas) or as high as $15,000 (some Tennessee counties); California at $2,000 is average.
- Most states bar attorneys from SCC actions (except when they are the creditors), but most also provide advice on filling out the forms, serving notice to the person you are suing, and preparing your case.”
For more complete debt collection advice, contact an attorney experienced in this area of the law. Additionally, you can review the complete text of the article above at the SBA’s site: http://www.sba.gov/gopher/Business-Development/Success-Series/Vol6/getting.txt
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Come back to the iLegal column every week as we get specific about the rules, regulations, laws and trends that affect the online advertising industry. Each week we discuss important legal issues, talk about how to avoid the pitfalls, and cover the breaking legal and regulatory advertising industry news.
Legal Disclaimer: Information conveyed in this column is provided for informational purposes only and does not constitute legal advice. These materials do not necessarily reflect the opinions of Digital Moses, and is not guaranteed to be complete, correct, or up-to-date. The column is provided for "information purposes" only and should not be relied upon as "legal advice." This information is not intended to substitute for obtaining legal advice from an attorney. No person should act or rely on any information in this column without seeking the advice of an attorney.
Mark Meckler is the General Counsel for UniqueLeads.com, Inc., and Unique Lists, Inc. Mark sits on the eCommerce and Technology Committee of the Association of Corporate Counsel, and is a member of the International Association of Privacy Professionals.
Copyright 2007 Mark J. Meckler
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