No business person likes slow accounts. But they are a fact of business life. Even the most fortunate businesses at some point will face a customer’s default, which can range from a minor irritation to a catastrophic event. Like other business problems, however, most customer defaults can be best handled with a bit of forethought and preparation.
Like other business problems, however, most customer defaults can be best handled with a bit of forethought and preparation.
In the early stages, communication is key. Don’t just sit and watch an account age, and hope for the best. The longer the customer gets by with no contact concerning a past due account, the more acceptable it seems to the customer. A few well timed, friendly calls can go a long way toward resolving many A/R problems.
But there are those cases that cannot be resolved by the creditor itself, either because of serious financial distress on the part of the customer, a perceived problem with the good or service delivered, or occasionally, interpersonal conflicts. In such cases, early legal intervention can be quite helpful and cost-efficient. An experienced commercial litigator can often resolve these more serious collection problems through correspondence (sometimes called “demand letters”) and related pre-filing negotiations. Particularly if the attorney has been retained on the proper basis, the business may be able to reach its goals with a minimum diversion of time and money.
Sometimes, despite all efforts, litigation is required to convince a debtor to pay. In many cases, trial can be avoided through the use of a litigation device known as “summary judgment,” or in the Maryland district courts, affidavit judgment. Trials can be tried to a court or to a jury if either side elects; some creditors with foresight benefit from contractual waivers of the customer’s right to a jury trial. Other creditors obtain the customer’s agreement to arbitrate all issues except the creditor’s right to payment – which may eliminate the debtor’s raising of meritless counterclaims as a method of defense.
In the toughest of cases, the customer will not, or cannot, pay even after judgment is entered. In such situations, the creditor has a right to examine the debtor in court as to the location and nature of the debtors’ assets, and in certain courts, the right to obtain additional information through court-approved discovery devices. The creditor also has the power to seize the debtors assets with the assistance of the court, and to reach assets and credits belonging to the debtor in the hands of third parties. And then, there is the specter of bankruptcy – a subject that will be reserved for future discussion.
Whatever the nature of a defaulted account, early attention is the key to good results.
