Customers who don’t pay their bills are an annoying aspect of the business world.  Because customers are the backbone of our business, we are hesitant to be too demanding in our dunning efforts, and even more reluctant to sue.

Creditors are always hopeful that the bill will be paid and further orders given.  We do not want to incur the wrath of a now and future customer by being too insistent about coming to grips with an outstanding invoice.

Yet, studies show that the longer a business’s bill is unpaid, the less likely it will ever be paid.  Creditors write off a large percentage of billings to bad debts.  To avoid these problems, early preparation can be helpful.

Identifying the precise customer is a simple task which is not always handled properly.  Creditors should try to get the customer’s composition, i.e., proprietorship, partnership, corporation, joint venture or otherwise, of customer or the exact name of the entity.  Credit issuers tend to deal with one representative of the customer, such as an officer, credit manager, division head or adjuster, and to address communications and billing to that person.

Getting a credit application of some kind completed is a big step in accomplishing this.  If you intend to charge interest on overdue billings, that fact must be stated before starting work.  Merely setting that forth on subsequent invoices may not be binding, because it may not be considered to have been part of the original terms of engagement.  Putting this in a signed credit application should be considered.

The same holds true as to a clause giving you the right to attorneys’ fees if referred for collection.

There comes a time when a creditor and customer part ways, and a bill remains unpaid.  A creditor may rebill for awhile, or write letters which become increasingly ungracious, or make calls.  If responses or promises are received, and the debt is acknowledged, a confirmation letter should be sent.  Although it may seem self-serving, it may become another piece of uncontradicted evidence in the future.

When you are totally ignored, or dunning efforts result in counter-threats, it is time to step back and consider whether you want to write the debt off or proceed with legal action.  You may want to think about referring the case to outside counsel.

An independent attorney will be objective in evaluating your changes of recovery and any settlement offers.  You will be less annoyed by the continued paperwork, and all of this may be worth paying a lawyer by the hour or on a percentage basis.

There are collection lawyers who are willing to handle these claims on a contingency basis, requesting only that you advance or reimburse costs incurred.  Of course, some former customers will want to settle upon receipt of a demand letter from outside counsel.  Such a letter is believed to show your serious intent to sue them.

You should transmit to the attorney copies of the credit application if there is one, invoices and statements, and relevant correspondence.

A compromise is frequently in order.  The attorney on a contingency has a stake in your recovery, and will want the largest settlement under the circumstances, but will likely be practical about recommending a compromise.  You must look at this as found money once you’ve farmed it out, because it is clear you would not have gotten anything by yourself.

More than 44 years experience in commercial and retail collections has led me to concluded that it is your early planning, diligence and flexibility which will give you the advantage and lead to higher collectibility of receivables from your former customers.

By: David I. Grunfeld, Esquire