Once you have an account go into arrears what do you do? First, you gather all the documentation. Primarily, that means Statement of Account, Invoices, Airwaybills, Bills of Lading, etc., basically, proof of your claim. Secondarily, it is good to gather any e-mails or other correspondence that may relate to your claim. For example, your debtor may have sent one of your employees a e-mail two months ago stating that there was a problem with your widget that you sold to him and he was not going to pay until it was fixed, and the correspondence was lost somewhere between Crisis 10 and Crisis 122. Maybe he has a legitimate beef, maybe not.
Hopefully, you’ve established an account profile which has your client’s (now debtor’s) company information that we discussed earlier (ie. Address, bank information, etc.). You should pull that together along with any correspondence and make a file. Once this is established, simply place a call to them. This way you will hopefully find out what type of debtor you have on your hands and you can develop a strategy as to how you want to deal with him. If they want to pay, but have they do not have the cash flow to pay all at once it is probably advisable that you try and work out a payment arrangement out with them. If you don’t, then your alternative is going to court, probably obtaining a judgment a few months down the road, and then trying to collect on that judgment. If what they are telling you is true, that they have no money, then you will not be able to collect upon the judgment and you will be back trying to negotiate a payment arrangement when their cash flow is worse and you’ve spent your valuable time and money going to court when you could have had a few months worth of payments in your pocket.
If you call your debtor and they don’t want to pay, your immediate instinct may be to shout some explicative and hang up the phone. Don’t! Instead, listen intently and question them thoroughly as to why they do not feel like they owe any money. Questions like “what was wrong with the product/service”, “when did you know there was a problem”, “who have you told”, “when did you tell them”, “did you put anything in writing to them/us”, “did you do anything to correct the error”. This is not the time to start an argument or make your own admissions, this is simply a time to gather information.
From this time forward be sure to document all conversations (who, what, where, why, when) and correspondences. If relevant, you should also take pictures of any pertinent product, etc. and/or interview all those with information or knowledge as to what happened, so that it is documented now nearest the time of the transaction and more freshly in people’s conscience rather than later when information can be forgotten. This may also make it more creditable with the judge later if it comes to that.
Once you have had the opportunity to process the information you can devise your plan as to how you want to proceed. If they have a legitimate “beef” then maybe you can call them back and work out a discount. Hopefully, things can be worked out and both parties feel like they were dealt with fairly, the communication was good, and the working relationship has been preserved and possibly even strengthened when the other side sees how fairly you have dealt with them. There is certainly value in preserving certain business relationships. It makes no sense to lose a $10,000.00 account over $200.00. So be careful, and know when to make concessions and who to make them to.
If they do not have a legitimate claim, you have to decide whether this is something worth taking to court. Small claims limits vary between $1,500.00 and $25,000.00 depending on your state, but most are around $5,000.00 (you can contact your local court and find out). If your claim is above your states small claims limit, then you should seek counsel and/or a licensed accredited collection agency. Generally speaking, you can represent yourself and file your case in most any state court of unlimited jurisdiction, however, judges WILL hold you accountable to an attorney’s standard in knowing the laws and rules of court. If you don’t, then you place yourself at a serious, and potentially costly, disadvantage.
Small claims, however, is another matter. It is set up for the average lay person with a relatively small civil matter to have their arguments heard. So the rules are more relaxed and the process is more streamlined. There are still rules and procedures though, so it is best to be organized and prepared. That is what we are going to try and accomplish next.