Considerations for a Business Owner when Attempting to Collect on Accounts Receivable
By Merissa Muery
Collecting What is Owed---Considerations for a Business Owner when Attempting to Collect on Accounts Receivable.
Almost every business will eventually have a situation in which services have been provided, the customer has been billed, and fails to pay what is owed. If this happens frequently, it can cripple or even kill a business’ financial viability.
How can businesses, already under stress in these difficult economic times, get the payment owed to them at the least cost to themselves? If a business chooses to hire a third party debt collector to recoup the delinquent amounts, what options does that businesses have in choosing a debt collection service? Are there certain types of collectors who can do more than other types of collectors? How can the business be sure that they will not run afoul of the myriad of laws governing debt collection?
The rules under which a business attempting to collect a debt must act depend in large part upon the type of debt at issue. For the purposes of this article, debt collection is classified either as consumer debt or as commercial debt. Generally, consumer debt is debt that is incurred in a transaction for personal, family or household goods or services. Collection of this kind of debt is governed by laws and statutes that collection of commercial debt is not subject to, such as the Federal Fair Debt Collection Practices Act and the Texas Debt Collection Act. Any business attempting to collect a debt or any third party acting on their behalf needs to be familiar with the laws contained within both these Acts. Penalties for violating these laws can be severe.
A business may decide it has neither the time nor expertise to attempt to collect its delinquent debts and decide to hire a third party. There are several types of third party debt collection firms available for businesses to choose from. For the purposes of this article, they will be separated out into either attorney or non-attorney debt collectors. Generally, a debt collection firm will charge between thirty and fifty percent of the proceeds from a successfully collected debt.
The first step in the debt collection process is to determine who is liable for the debt. In cases where an individual contracted for the goods or services provided, this is a simple question to address. In situations where another business has contracted for the goods or services from which the debt arises, the question becomes more complicated to answer. Was the debtor business a sole proprietorship? A partnership? A corporation? The type of business the debtor business falls under will be important in determining who can be held personally liable for the debt at issue.
Once it had been determined who the debtor actually is, then the debt collector must locate the debtor. This sometimes can be difficult to do, particularly when the debts are old or the debtor does not wish to be located. However, there are multiple tools ranging from internet searches to private investigators that can make this process easier and more expedient.
After locating the debtor, the debt collector must contact the debtor to inform him of the debt and request payment. This may be done by telephone, by letter or both. Multiple calls may be made and multiple letters may be sent during this stage, and if the debt is consumer debt, the rules set out in the Federal Fair Debt Collection Practices Act and the Texas Debt Collection Act will apply to these communications.
Up until this point in the process, there is little difference in the tools available to Attorney debt collectors as opposed to Non-Attorney debt collectors. However, once the debtor has been contacted, Attorney debt collectors have the legal expertise and licensing to allow for a wider range of options should the debtor refuse to pay. Depending on the facts of the case, these options may include:
1.) filing suit against the debtor for the owed amount plus a reasonable amount of interest running from thirty days after the date the debt was due,
2.) Agreed Judgments that may be negotiated pretrial,
3.) requests for Judgments to be made by the court at the end of a trial.
4.) post-judgment discovery to evaluate the collectibility of the judgment
5.) requests for judgment liens which may be used to collect the debt owed
6.) requests for writs of execution to allow the sheriff or constable to seize non-exempt real and personal property to satisfy the debt,
7.) garnishment writs, which may be used to garnish bank accounts, savings accounts and stock accounts to collect the debt owed.
The debt collection process can seem time consuming and intimidating. However, a carefully chosen third party debt collector can recoup much of the loss your business would otherwise suffer from bad debts. Each business should look at their particular needs and goals in choosing whether to hire a third party debt collector.
Merissa Muery is a partner with the law firm of Fry, Muery & Muery on Market Street in the Woodlands. The firm is available for consultation regarding debt collection. Call 832-631-6223 or visit their website at www.WoodlandsTexasLaw.com
