This was an old Benjamin Franklin saying, but it is as true today as it was then, especially when dealing with your either client or potential clients.  When you set up what may be an ongoing sales or business relationship with another person or business you should always have them fill out some type of credit application/check form with references, bank, and business information on it.  You can find any standard form online and maybe even tailor it to your needs if necessary.

This accomplishes several things.  One, any business or person that has bad intentions will probably think twice about trying to not pay their bill because they are a bit more exposed to you.  Two, it will give you enough information so that you can check and make sure that you are dealing with an established and legitimate business.  You should be looking at things like: do they have a storefront or are they working out of a P.O. Box, are they registered with any associations such as the local Chamber of Commerce or Better Business Bureau, how long they have been in business, business references, etc..   The third advantage is that if you do have to collect you will have their bank account information on file, and bank levy is the easiest and most efficient way to collect on a judgment.

Following this simple process will likely cut down on your accounts receivables and if a business does end up owing you money, it will make your ability to collect that much easier in the long run.  If they balk at the idea, then you might want to ask yourself, or them, why?  Depending on their answer you might choose not to do business with them.  Either way you will know your customer/client a little bit better and the decision is yours with the knowledge you have gained.

This is the second part of a series of articles for small businesses on how to collect your own commercial debt.

The first rule of collections is: PICK UP THE PHONE.  Many people do not like confrontation, or at least the potential of conflict, and will avoid it at all costs.  That will not get you your money.  Plus, no one is saying you have to get into an argument with anyone.  You just have to pick up the phone and call.  Just find out what is going on with your customer.  It may be as simple as their paperwork was lost or they honestly forgot to pay, but you will never know unless you make the effort to find out.  Possibly, they cannot make the whole payment now and were waiting to pay the whole thing at once, at which point you can work out a payment plan with them.  Putting at least some money back into your pocket immediately rather than maybe a few months from now…or more. So just pick up the phone!  It is the easiest way to find out exactly what is going on.  Besides, more times than not you will get an answering machine.  If they do not call you back then you really know where you stand…at the back of the line.

Rule two: know your collection style and who you are dealing with.  What type of person are you?  Hot headed and confrontational?  Easy going?  Shy?  Outspoken?  Whatever the case may be, be who you are.  It doesn’t matter if you are the boss, the boss’ assistant, collection manager, or just the flunky that your boss has doing the dirty work.  You cannot be someone that you are not.

Most all collectors I have know are pretty confident individuals and not afraid to get into an argument and many times encourage it.  However, that is because they must get to the point quickly as they have a certain volume of calls they must reach and numbers to hit, so they are not in the business of wasting time with people.  They call the debtor, push hard, and blow the debtor out if they balk at paying.  Not to mention they have no stake in preserving a business relationship with that person, they are hiding behind a made up “collector’s name” and the agency so what do they care?

Rule Three:  Once you’ve cast the line, let them run with it a bit before you reel them in.  My opinion is that you catch more flies with honey than with vinegar.  Plus, although I have conditioned myself to be assertive and confrontational when it is called for, I am generally an easygoing person.  Therefore, more often than not I will allow a debtor to talk and vent before I reel them in to discuss the actual matter at hand…paying the debt.  A general rule for collectors is to always keep the debtor focused on paying the debt, do not let them go off on tangents as to why they don’t owe or can’t pay or try to sweet talk their way out.  Always bring them quickly back when they try to stray to far.

It is true that at some point you are going to have to get them to address paying the debt, but I like to give them enough rope to possibly hang themselves.  Once they start repeating themselves and/or you feel you have the entire story, then cut them off and find out how they want to take care of the debt.  I look at knowledge/information as power, the more they are willing to give me, the more I am willing to take.  The advantages: a.) you now know exactly what the problem is, b.) chances are they will say something that they shouldn’t have let you know, c.) if you do have to litigate, you already know what issues they are going to raise so you can prepare to refute them (no surprises).

Rule four: know your bounds.  When collectors or attorneys call a debtor they already know going in what their client’s settlement parameters are (ie. Seventy-five (75%) percent of principal over 6 month or anything over $5,000.00 payable within 3 months).  It would also be prudent for you to know going in what you would take in settlement.  That way you know where you are negotiating to or from and you also don’t have to call your debtor back when an offer has been placed on the table and risk not being able to get a hold of him or her again and losing another week or more.

When negotiating standard rules apply.  Make them put an offer on the table first.  Do not negotiate against yourself (make them counter your counter before you re-counter???).  Never take their first offer (it’s usually not their best).  You can always negotiate down, but you can never negotiate up, so start high and work your way down until you can meet in mutually agreeable area.

If a deal cannot be made, then you agree to disagree, and then you make a decision: to litigate or not to litigate.  If a deal can be made then….

Rule five: close the deal.  If you come to a general agreement, do not hang up until the details have been confirmed.  You may find out that your agreement is really no agreement at all until you know exactly how much they are paying, when they are paying it (ie. 1^st of every month), how long they have to pay it (ie. 3 months from today), and who they are paying it to (ie. You or your supplier).  You might also want to have an understanding as to what will happen if it is not paid according to your agreement (ie. No further discounts and/or credit).  This is known as “the hammer” and gives them some incentive to follow through, which is always good.

Rule six: document it.  If you settle your claim at this point, having a stipulation or contract drawn up may be a bit overkill for most smaller debt, but you should definitely send out a “confirming letter” so that you both have documentation as to exactly what you have agreed to.  Besides, it is always good to have your own paper trail, just in case things go bad, which often happens.  You might also place in your letter something to the effect that, “if this is not your understanding of our agreement please notify me in writing immediately” just to be sure.

Follow these simple “rules” and you will be well on your way to cutting down your accounts receivables and maximizing your collection talents.  However, if you wish to have the services of a professional and/or have a buffer between you and your customer/client do not hesitate to call the Law Offices Sakaida & Bui for a knowledgible and experienced collection attorney that will meet all your collection needs.

If you are looking to collect a debt owed to you or your business it is important to understand at least the generalities of debt collection.  For instance, what type of debt are you holding?  Typically, debt falls under one of two (2) large umbrellas; it is either commercial (business) or personal (often referred to as “retail”).  Obviously, a commercial account relates to a business’ goods, service, merchandise, etc. being provided to another business who fails to pay for it, while personal or retail debt generally has an individual person as the end user (eg. Credit card or medical debt).

While there are basically two (2) types of debt, there are generally three (3) types of debtors that you will encounter in your pursuit of collection. First, there are those that will acknowledge the debt and know they owe the money, but just don’t have it.  In this instance, you might want to try to work out a payment plan with them, if possible.  Afterall, something is better than nothing.  If you don’t trust that they are insolvent, it is not out of the question to ask for documentation of their financial situation (eg. Bank statements, copies of judgments, tax returns, etc.).  If they are offering nothing and have nothing, then sometimes it is better to just write it off as bad debt and move on.  There is a saying in the industry that you “do not throw good money after bad”, and that is a true statement.

Second, there are those contested claims where you and your debtor have a difference of opinion as to what transpired and they dispute all or part of the debt.  If they have a legitimate dispute, then you need to look at that situation objectively and maybe swallow some of your pride and “make it right”.  If you decide to go to court and you know that you are in the wrong, the truth will come out.  Why waste the time and money.  However, if they are wrong you need to have your documentation in order (eg. Proper invoicing, signed bills of lading, etc.) because in a court of law more times than not it is the party with their “I”s dotted and “T”s crossed that will win.  Either way, put your ego aside and try to work something out.  I have had many a client “go the distance” refusing to settle because it was “the principle” and end up wishing they had taken the first deal on the table because they either didn’t have as strong a case as they thought (despite warnings!) and the judge looked as both sides, not just theirs, or the debtor didn’t have anything more to give.

Third, unfortunately there are business people (men are not the only ones) in this world who look at any transaction or endeavor as a numbers game and they will go to any lengths to beat your company out of 5, 10, 50, 75 percent if they can because that means money in their pocket as opposed to yours.  They may dispute it (even though they have no basis to) or they may not, but they are not going to pay you, at least without a fight, unless or until they have to.

These debtors need to be sued…now!  Otherwise, you will get strung along for months or even years without satisfaction.  Get them into court and in front of a judge as quickly as possible and get your judgment.  Even after a judgment you need to set about the task of trying to collect upon it which we will cover another time.

The key to your collections is to know your debt. and your debtor, and approach it accordingly as not all debts or debtors are created equal.  Some will require you to listen, others to yell, and some to take action.  What is important is recognizing the situation and judging yourself accordingly.  Good luck!

Welcome to my blog.  My name is Don M. Sakaida.  I am one of the managing partners at Sakaida & Bui.  I have been a collection attorney in the Los Angeles area for nearly 15 years working with and for various collection agencies and representing numerous clients in various industries, including Fortune 500 companies, in their efforts to collect monies owed to them by their clients.  Before that, I actually worked in a collection agency as a collector and legal assistant.  So I am fairly well versed in the realities of this industry.   I want to bring to you some of my knowledge and expertise to help you improve your business’ collections, and if by chance you happen to need or want an attorney to handle some of your accounts receivables then give us a call.