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Legal Issues in Parking Area Sweeping |
Getting Tough on Collectionsby Michael Lanza"Until the money is in your coffers, it doesn't count." So says Michael Lanza, President of Sani-Collect, Inc., a collection agency specializing in collecting on delinquent accounts in the garbage and sweeping businesses. In this article he provides some valuable tips on the 'do's and don'ts' in today's collection business, as well as some solid advice designed to help you collect the money that's due you. Accounts receivable is one of the most powerful features a business can show, and one of the first things any lender will look at. Conventional lenders look at this as the #1 reason/barometer in making a decision to lend money or not. In spite of this, 87% of business owners don't get tough on collections until the 6th month, and 20% don't attack their receivables until a full year has passed. By that time, not only are they getting hit for money they didn't make, but they actually lost money 'out-of-pocket' as a result of doing the service. Fortunately there are some steps you can take to help ensure your ability to collect from a client. If you are uncertain about any new client, ask them to sign a contract that lets you collect interest on late payments. Also, add a clause to your contract that says you can get collection fees whether or not a lawsuit is filed. If they balk at this, there may well be a reason. You don't even have to redo your contract to add this, just get a stamp with the verbiage and add it near the signature. Make sure customers sign contracts on both front and back if there is anything of a legal nature on both sides. Establishing venue for your contract is another proactive step to take. Normally the default venue will be in the county where services took place. You can, however, have new clients in neighboring counties sign a contract agreeing in advance that venue will be in your county. This makes it much easier for your staff in terms of travel time and paperwork familiarity in the event you need to start a collections' proceeding. Credit worthiness is another area where the wording of your contract can be very important. A collection agency can't request a credit report on a deadbeat account, but if you, as the business owner, have a credit release in advance authorizing it in the client relationship, then you can get a credit report. By the way, credit bureaus always show who requested their credit information. Unfortunately, each state has a statute of limitations of its own, and there is no statute of limitations on a time frame in which you might amicably collect your money. This means that in many cases you can't sue in what might be considered a 'timely' fashion. You can, however, put a memo onto a delinquent company's credit report. The largest three credit reporting agencies in the United States are Equifax (1-800-685-1111), Trans Union (1-800-851-2674), and TRW (1-800-392-1122). You can also check a new client's credit rating with these agencies prior to signing a contract with them. (Keep in mind, however, that a study has shown that a surprising 37% of credit bureau reports from the 'big three' are inaccurate in some way.) Value of Accounts Determined by AgeThe longer an account remains unpaid, the greater the chance it will never be paid. 
A delinquent dollar is worth less each day it remains unpaid. To keep accounts current and prevent delinquents from becoming unrecoverable, past-dues must be aggressively followed up and liquidated as soon as possible. Rapid turnover of receivables means more working funds for growth. Only when your payment is received is the sale complete. Initially, most businesses attempt to get paid by having someone within the company call for payment. If you do decide to handle collections yourself, be sure to find out for certain what rules you must follow. Be advised that most states allow customers to tape their phone calls with you. In some states it is illegal to tape without permission, however. Your watchword is to be careful what you say, and know what you may and may not say in an attempt to collect your money. For example, if you send a notice saying that if they don't pay in 10 days you will sue them, if you don't sue soon after the 11th day they may be able to sue you for harassment. The day of the bluff is over. There are probably times established in your state about how early or late you may call, calling on religious holidays, etc. Be sure you know about the statutes in your state before you try to collect on your own. Clues for when help is needed to collect debts:
If your internal collection efforts are unsuccessful, then there are three basic ways to go. Small claims court is often the best of these, if it is an option. Advantages include low filing fees, and the fact that it is conducted without involvement of attorneys. Some small claims courts go up as high as $4,000 and you can have up to 10 cases on the docket per same trial day as long as you are represented by someone who is on your payroll. As a result, this can be a very cost-effective route to take. If services were performed in your county, then the court action can also be in your county. By the way, as far as I know, you can't go to court without an attorney at any higher court if you're a corporation. Also keep in mind that you can sue for less than you are owed in small claims court, although you must waive your right to the rest of the money. Still, if you are owed just over the limit, that may be an attractive option. A factor in your favor is that 8 of 10 defendants in small claims court actions don't show up. Unfortunately, it's far from automatic to get your money, even with a court judgment. You must still determine where the company has enough assets to cover the judgment, and then show the appropriate law enforcement agency. To keep track of that information, make a photocopy of a check from new accounts, so that if they don't pay later you will know what bank they use. A second option is to hire a collection attorney. This can also be effective, but it is very important to hire an actual collection attorney if you choose that route. One way to ensure this is to insist on a member of the Commercial Law League of America. It has 4,100 members nationwide, and an attorney or law firm must document that 51% of their practice is collection-oriented before they can join. The CLLA may be reached at 312-781-2000. Another advantage is that the vast majority of these attorneys work on a contingency fee basis, so you pay only the out-of-pocket costs prior to actual collection. Also remember that no attorney fee schedule is written in stone. Standard fees for collection agencies are also variable. Be sure to request that any agency you consider supply you with a copy of their license and bond. Then call the bonding company to confirm that the bond is still active. Many payments are made in cash, and these have been known to just 'disappear.' My recommendation is also to invite a representative of any prospective collection agency to your office prior to hiring them. In my experience, 75-80% of business managers don't bother to meet their collection agency, and this is a mistake. There are several advantages to a face-to-face meeting. The agency will be better able to get a feel for your business, and you will be able to assess in person what might be termed the 'personality' and 'tone' of the agency. Make sure you are comfortable with both the plan of action and techniques that they propose. If they don't want to send a representative to your office, then my advice is to go on to another agency. Unfortunately, in today's business climate 2.5% of new customers are out to 'beat you,' in that they don't plan to pay. That means that you, as a business owner, will sooner or later have to make decisions on how to handle collections for your company. Whatever you do, don't procrastinate. Take the necessary action before the money owed to you shrinks with time. To reach Michael Lanza's company, Sani-Collect, call 1-800-253-4869. |
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