It is important for business to have an efficient system by which to collect monies owing. As with most lawsuits, collection matters can be made more successful and less time-consuming when proactive measures are taken prior to a conflict arising. This article shall explain some of the proactive measures that may be instituted by your company to streamline the collection process. This article will also discuss what services our firm can provide for you to implement the necessary procedures to improve your collection process.

In most collection matters, we are dealing with unsecured debt. Usually, by the time the debt is referred to an attorney, it is at least 120 days old. In most true collection cases, which are undisputed debts owed by the debtor to the creditor, non-payment is a result of financial problems of the debtor. Since non-payment is a result of financial problems of the debtor, our claim is usually not the only one against the debtor and there is a substantial risk that a bankruptcy would hinder the claim. A collection matter that ends up in bankruptcy is lucky to get pennies on the dollar. In most cases, when a debtor reaches the point where multiple collection actions have been filed against them, they do not have sufficient assets to pay all of the creditors.

However, there are steps which can be taken in order to minimize the risk. Below is a review of a few of the possible vehicles available to protect your debt.

PERSONAL GUARANTY

One common credit procedure available to protect your debt is to obtain a personal guaranty on all corporate debt. Corporate Status shields a corporation's shareholders and employees from being personally liable on the debts of the corporation. In most instances, as a supplier of goods, you are contracting with a corporation and not with the individuals running the corporation. In many instances, corporations are under-funded and do not have the assets necessary to fully satisfy their creditors. In these situations, a personal guarantee makes the shareholders of the corporation personally liable on the debt, in effect providing an additional Debtor from which to collect.

A shareholder who is personally liable for a debt will put a greater emphasis on payment of that debt. If the corporation defaults and does not have the assets to satisfy creditors, you can look to the shareholders of the corporation to satisfy the debt.

LIEN RIGHTS

If your company supplies building products or services, depending on the particular situation, you may have the right to a lien on real property. These lien rights are subject to certain time requirements (90 days to file from the last furnishing of goods or services) and filing requirements based on when your supplies are delivered or services are rendered.

Obtaining lien rights could assist in the collection process by allowing you to foreclose on a particular piece of property on which the lien attaches. It is also helpful in that it will bring other parties into the action that may choose to pay the outstanding debt to preserve the marketability of the title for the particular piece of property.

SECURITY INTEREST

Another device which may be used, or even incorporated into a credit application or credit agreement would be a security interest. A security interest acts like a mortgage on the particular personal property and gives the creditor the right to repossess this property in order to satisfy the debts owed. It is possible for a creditor to obtain a security interest in the product that they sell or a general security interest in all of the assets of the debtor corporation. There are benefits and if properly perfected, this security interest would give your company priority over all other creditors on the assets secured and the proceeds therefrom. If the Debtor declares bankruptcy, this priority could be the difference between receiving full satisfaction of your debt or pennies on the dollar.

BENEFITS OF NEW CREDIT POLICIES

Implementing efficient collections procedures will significantly reduce the time and expense of the collection process. It will also serve to make collections more successful. Also, in certain circumstances, it will allow you to extend more credit or credit to those that you normally would not. These situations would normally be instances where the company can give you a security interest in a great deal of property or where you can get a personal guarantee from a credit-worthy individual.

We recommend that you get all of your current and future customers to sign security agreements and possibly personal guarantees. While you may believe that your customers will refuse to sign these documents, you will find that most will agree to these terms if it will help them get more goods or services on credit.

While these security interests make your debts more collectible in most instances, it is still important that your customer have assets available to secure the debt. If there are no assets available and the customer is not credit-worthy, these documents would not assist in making their debt collectible.

If you have any questions regarding your current credit policies and how they can be improved feel free to contact Nathan M. Hull at 704.375.8488.