In today’s business culture we call businesses working with other businesses B2B. It has always been a popular practice to the alternative, business to consumer. The rules are different governing B2B as opposed to B2C. The legal and business world assume that the B2B relationship and players are more sophisticated.
This post discusses what happens when the B2B relationship sours and one company must collect what it is owed from another company. The most important distinction between the rules of B2B and B2C is that consumers are much more protected by government regulation. The Fair Debt Collection Practices Act protects the consumer, not businesses.
Most business think that when an account is overdue, then they call up a debt collection agency and the debt will be collected or its deemed bad debt. Businesses write off huge percentages of accounts receivable every year based off this flawed thinking.
There are at least two phases of debt collection, each of which could arguably be broken down into subcategories. You have a pre-debt fact gathering and document filing stage, as the first phase. Then there is the actual debt collection which can consist of many different options and this occurs after the debt is due. So more of a pre/post mindset.
The pre-collection phase is often over looked and much more important than the post-collection phase. It is the foundation for the collection. This is the fact gathering and organizational portion.
This phase includes the initial fact gathering on the business. Your business should have an in-take sheet whereby it gathers all important information from the other business. Some of my clients even go as far as running credit checks on the business or getting personal guarantees from its senior members.
For contractors, suppliers and equipment lessors that I represent, this pre-collection phase is essential to keeping the accounts receivable low. This phase also includes sending out notices and filing liens, in a timely manner and properly. All of these essential elements make the post-collection process much easier, more efficient and most importantly successful. The old adage that I preach, is an ounce of prevention equals a pound of cure.
Finally another important aspect of the pre-collection phase is a well written contract between you company and your business client. This contract should have specific default and attorney fee provisions.
Now your company has all of its intake information, gathered credit reports, personal guarantees, sent your notices, filed your liens, and have a well written contract, but your business client refuses to pay on its obligation to your company, what do you do?
There are a few options here and only one good solution. Your business could write off the debt, it could try to collect internally, hire a debt collection agency or contact an attorney to collect. Obviously I’m biased here, but I do see this often. Writing off the debt is never good. Collecting internally can be okay but its slightly less successful than a debt collector. Attorneys can do all of the following steps which make the percentage chance of collection go up.
Your commercial debt collection attorney has a number of weapons at his disposal to collect on the outstanding debt. Many of them have time delays built in by law, which slows the process. First is to send a demand letter which includes the Louisiana Open Account Statue language. This is another avenue to get attorney fees and costs associated with the debt collection.
After the demand letter is sent out and thirty (30) days elapse, then its time to file suit against the debtor. Many businesses balk at this option because litigation can be costly and risky. Depending on the size of your debt, you attorney will likely take it on contingency which will minimize the litigation costs. From there your attorney will get a judgment, either by default or after trial.
Once the judgment is obtained, there are a number of possible means of collection. The attorney can examine the assets of the debtor, in a judgment debtor rule hearing whereby the debtor will be sworn-in and give testimony as to what the business owns. Further, the attorney can garnish banking and physical assets of the business. The judgment will be good for ten years and can thereafter be reinscribed. Once a judgment is granted collection chances go up.
In the end, some debts are simply bad and cannot be collected. Others, however may just be tricky or require persistence. Having a good commercial debt collection attorney at your side will greatly increase your collection rates and keep your accounts receivables low.