As the world continues to grapple with the economic impact caused by the COVID-19 pandemic, many businesses are finding it difficult to collect their outstanding Accounts Receivable. Labor shortages and disrupted supply chains have negatively impacted consumers and businesses alike, leaving them unable to meet their financial obligations. While we have yet to see the rise of bankruptcy filings many economists predict, one can’t help but have a sense of foreboding as many of the government programs that financially carried consumers and businesses through the pandemic are coming to an end. During these uncertain times, creditors will find, contrary to the 1960’s Rolling Stones hit, “time is NOT on your side.”
What Can Creditors Do Now to Improve its Accounts Receivable Process for the Future?
The first step creditors should take to improve their accounts receivable process is to establish written policies and procedures for managing company receivables. The policies should include standard operating procedures that establish timelines and methods for contacting customers regarding outstanding invoices. These contacts should start as soon as the first invoice is issued. These contacts should include, at a minimum:
- Reminder emails of approaching due dates, when appropriate;
- Timely issuance of overdue notices;
- Collection letters.
Lastly, these policies and procedures should establish when accounts should be referred to a third-party collection agency.
As part of this process, a company should also adopt a well-drafted credit application that will allow it to gather as much information about its customers as possible. Too often, businesses extend credit to customers for products and services without sufficient information about their customers’ ability to repay the obligation. Companies that already have a credit application in place should consider reviewing, and to the extent necessary, revising their credit application to ensure that it provides, at least, the nature of the customer, trade and financial references, terms of payment, and asset and income information. It should also include a provision for the assessment of service or interest charges on past due invoices, a personal guaranty of the account by one or more of the customer’s principals, and where appropriate, payment of collection costs, including reasonable attorneys’ fees. Companies should have their customers update the information contained in the credit application annually, if possible.
What Can Creditors Do to Collect on Accounts Receivables that are Currently Delinquent?
All companies will have a different risk tolerance when it comes to outstanding receivables. However, once that threshold is crossed, companies should contact a Creditors’ Rights Attorney to assist in collecting these accounts. A Creditors’ Rights Attorney will be able to evaluate outstanding receivables and provide an opinion on the collectability of the accounts. When referring an account to a Creditors’ Rights Attorney for collection, it is essential to know that there are numerous tools a lawyer can employ to collect on these accounts, such as:
- obtaining a judgment against the debtor;
- garnishment of the judgment debtor’s wages or bank account;
- execution against the judgment debtor’s personal property;
- charging order against the judgment debtor’s interest in a partnership;
- creditors bill against the judgment debtor’s interest in real property; and
- judgment lien against the judgment debtor’s interest in real property.
Litigation is not always necessary, though. Sometimes receiving a demand letter from an attorney will incentivize a debtor to pay their obligation. Other times, however, debtors may dispute the matter. A company may be dissuaded from pursuing these accounts to avoid becoming embroiled in the litigation process. Fortunately, the Creditors’ Rights Attorneys at Carlile Patchen & Murphy LLP offer flexible fee arrangements that help minimize a company’s risk of loss.
It is essential for companies to review and revise their collections’ process. Companies should adopt policies and procedures that establish timelines for written notices and guide the company on obtaining assistance from a Creditors’ Rights attorney. Additionally, companies offering services or shipping products with payments to be made later should adopt a credit application that gathers as much information as possible about the account holders and provide protection in the event of default. When it comes to collecting on accounts beyond a company’s risk tolerance, obtain the assistance of the Creditors’ Rights Attorneys at Carlile Patchen & Murphy LLP as soon as possible. Don’t let these accounts fester or sit idle for too long. Otherwise, a company may find itself wanting or paraphrasing another Rolling Stones hit, unable to get any satisfaction.