How to avoid problems – cheaply
First, check them out
IT IS ridiculous for anyone smart enough to be in business not to make routine credit checks. There is no point chasing a debtor with a summons if there’s nothing there. You’ll get plenty of ‘legal action’ — but you’ll pay for it all yourself. The debtor won’t be touched.
Look under ‘Credit Reporting Services’ in the Yellow Pages. Call a couple of these services. Get their literature. Then join one. You pay an annual subscription (in the very low hundreds) and a small fee each time you want to find out about someone (whether a person, or a business). And I do mean a small fee: less than $30, usually.
On an individual, you can get information like this:*
- Driving license number and date of birth.
- Name of employer, and previous employer.
- His address, address before that, and before that.
- Companies he is a director of, and former companies.
- Credit services, banks etc. that have been enquiring about him, and when.
- Any writs and summonses served, and whether he has had any court judgments against him.
- Default information, including written-off accounts and accounts referred to a collection agency.
- Which mercantile agents have made enquiries about the person.
On a company, you can get information like this:
- Trading address and registered office.
- Incorporation details, issued shares and paid capital.
- Details of directors.
- Writs and summonses served and outstanding court judgments.
- Default information, including written-off accounts and accounts referred to a collection agency.
- Which mercantile agents have made enquiries about the company.
So if someone who asks you for credit is in financial trouble, you’ll know it before you start doing business. You can tell him: sure, send us the $6200 and you can have the (whatever it is). If he huffs and storms and threatens to take his business elsewhere, let him. Let one of your competitors have the loss.
Now I realise it’s easy to say, “Keep your credit tight”. I know the temptations. The sales staff are selling, selling. Maybe business isn’t too good, and you really want this sale. But I repeat: the easy way to get difficult debtors to pay is never give them credit to start with. Money up front, or no sale.
But even if your credit checks are squeaky tight, you still won’t avoid all problems. A debtor can ‘go bad’ for a hundred reasons. He can be a first-rate customer for years, then something slips. Instead of paying in 30 days, all of a sudden he drifts out to 45 or 60. Or maybe a cheque will bounce. Or something else that’s not just quite normal. This should start to ring little bells. You should find out what the problem is. Use your credit reference agency. If that doesn’t show any ominous signs, then phone the customer. You’re entitled to find out what’s happening — you’re providing the customer with credit.
The customer might say, “Accept things as they are, or we’ll go somewhere else.” That can put you in a quandary. Maybe he’s spending $10,000 a month and it’s an account you don’t want to lose. But really, you might go for three months without getting paid. Maybe $30,000. And if he doesn’t pay in the end, it means you might have to find $300,000 in new sales to make it up.
Another suggestion: treat your sales and credit people as equals. Pay them the same, push them the same. Invite your credit manager to some of your sales meetings. If your credit manager has guts, he might say something like, “You bastards out there make the sales, but I can’t get the money. Don’t you eyeball them? Look, so and so is paying on 90 days now. Is he earning a quid? Or is he slow as hell out there, with no contracts? Is there lots of stock around? Let me know. You might try picking up a cheque too, next time you’re there.”
Then get it in writing
THE MORE you get in writing, the stronger your hand will be if the debtor goes bad. If you have to go to court, your case will be tight. (But usually, with lots of signed documents in your hands, you probably won’t need to: the debtor will realise his position is too weak.)
I know this isn’t a popular topic. All that paperwork hassle — for what? It feels like driving with the brake on. But I wouldn’t be doing you a favour if I didn’t at least mention ‘credit management’ (the right term for a system for checking out your customers, and keeping all the documentation straight).
How much documentation you use — and what sort — depends on the size of your business, how much bad experience you’ve had with debtors, how much you know about credit management, how tolerant your customers are about signing papers (including directors guarantees), and a hundred other things. But whether you know it or not, you already have a credit management system: it might be good, or less good, or downright lousy — but it’s there.
You may be relieved to know that I’m not going to mention anything else about this topic. (As I said, I’ve found that people really don’t like to hear about it.) But that doesn’t let you off. If you get your credit management wrong, it will come back and thump you. If you get it right, you’ll get your money almost every time. But to get it right, you may need help: if you feel shaky on all this, you can contact us here at DebtForce Limited to assist.
Debt Collectors vs Lawyers
“The lawyers are very highly paid people. To my knowledge, there aren’t many who specialise in small debts. And as they get busy, they tend to gravitate to more lucrative work.
“Where litigation is used, you should research it pretty thoroughly before you start. Lawyers tend to look at themselves basically to do litigation. And negotiations by a lawyer are pretty expensive, because of the time. They consider they aren’t serving their client properly unless they issue proceedings, because none of the costs are recoverable until they’re on summons or whatever. So there’s a problem about doing anything but minimum negotiation.
“It’s the opposite for a debt collector. I know very few debt collectors who encourage litigation. The lawyers really aren’t encouraging it — it’s just they can’t really do anything else. Lawyers don’t have people on the road, they can’t knock on doors, they don’t have those telephone skills and things. Their telephone skill is avoiding wasting time on the telephone. It’s bringing the thing to a head, defining the issues, and settling them.
“If other lawyers are involved, you need a lawyer. If we get a matter defended, we don’t try to argue with a lawyer. We brief our lawyer, who takes over. So perhaps where litigation is certain, you need a lawyer. Where another lawyer is involved on the other side, you need a lawyer.
“Where you don’t need a lawyer is where you don’t really know what you want. Where the debtor is missing, or it’s not clear if he has the assets. Or whether there are important non-legal aspects to be considered, like negotiating with the guy. I’m not talking about reaching a settlement with him. For example, where the guy is worried about what’s going to happen to him in procedural things. Where a lawyer might not want to talk to him. The lawyer might just say, if you don’t pay, we’ll serve.
“One of the biggest problems is when clients start to realise it’s their own fault they’ve got this problem. And they’re desperate to find someone else to blame. You know, the debtor is the worst bloke in the world — often he is. But frequently he never should have been given credit.
“Before you engage someone to give advice, you have to take a hard look at yourself. You have to be ready to write debts off if you can’t collect them. If you get burned, be careful about criticising the people who advise you. Very often people fly into lawyers offices wanting to issue summonses. The lawyer might say, ‘It’s 50-50, it’s your decision.’ He really means that. You might lose. You are really asking for it if you don’t listen to him.”
Some of this sounds critical of lawyers. It isn’t really — any more than criticising Mercedes because they make high-quality, expensive cars. That’s what they do. My aim is to describe things as they are, as I found them. Once you know how things work, how different worlds interact and what matters to different players, you can make effective decisions. And we are getting there…
Debtforce has their own in house solicitor, so along with having all the information in one place, there is no delay in organising legal proceedings and escalating the matter further if instructed.
Coffee ‘N’ Cake Break
Would you like a chance to win a delicious cake of your choice for you and your team?
As of the 1 October 2009 we are running a monthly draw for a shout from us at Debtforce for Coffee and a Cake of your choosing.
How do I enter?
You are automatically entered when you send through a debt for recovery during each calendar month, you get one entry per debt so the more debts you send through the more chances you have of winning.
The winner is drawn on the first working day of the new month and as a prize may choose any cake from the Cheesecake Shop and order their coffee which will be delivered at the request of the winner.
Many clients have already experianced the “taste” of being a Debtforce client and we would like you to be able to as well so if you have any debts no matter what size send them through now via your template for a chance at this offer.
Psychological section: know thyself
DEBT-COLLECTION professionals estimate that at least 80% of people have terrible problems asking for money. Even if there’s no squabble. They just hate asking. They can’t stand the idea of walking up to someone and saying, “You owe me such and such. May I have a cheque please?”
Are you like that? Worse yet: is your credit manager like that? (Many are.)
Here’s a simple test: you’re in a queue and someone pushes in. Do you grumble under your breath and let him in? Or do you pipe up and say, “Hey! There’s a queue here. Go to the back.” Eighty percent or more would let the person push in. The same 80% are the ones who have trouble asking for money (from anyone — even their own brother).
If you’re honest and think you aren’t a natural debt collector, take account of the fact. Hire someone who finds it easy. This is precisely what many debt-collection agencies try to do themselves: pick people who are psychologically right for the job. There’s no point in them hiring someone to collect debts if it takes the person half an hour to calm down each time he phones someone.
And back to you: think of your health. If debt collection rattles you, you won’t be able to sleep at night. Is it worth it? Can you run a business that way?
You have to know how much debt-collection you can stand, then hand over the job when you reach your threshold. Let the professionals go after them. The peace is wonderful.
*an extract from “The Debt Collector” published 1990
What happens to the innocent
What happens to the innocent
SEE IF the following story sounds familiar.
At the time, you were really happy to make the sale. He was a new customer, and his order was worth $6200. A promising new customer. And he was delighted with your product (or service).
But now thirty days have gone by, and you’ve had no cheque. So you phone him. No problem, really. “It’s just that two directors need to sign the cheques, and one of them is out of town. He’s expected back in two weeks.”
Two weeks later, you phone again. The director got back, they tell you, but he’s having a minor operation on his leg. He went straight to hospital and didn’t get a chance to sign any cheques or go through his in-tray. Terribly sorry, but they swear you’ll get a cheque next week.
Nearly two months have now gone by. The $6200 would be useful in your cash flow. You have bills to pay, like anyone else. You try phoning again — but now have trouble keeping the irritation out of your voice. Has that cheque been signed yet? Yes, they say, but it’s with the book-keeper, who has a whole pile of cheques that need to be “entered into the computer”.
“When?” you ask.
“By Friday,” they assure you.
Surely, things can’t keep going wrong? (Or, more darkly: surely, they must run out of excuses soon?)
Not so. The problems can go on for a long time yet. That computer, for example: there could be a disk crash. Or your cheque could be sent to the wrong person, to someone who’s in New Zealand. But never mind, they’ll issue another one… when the computer is fixed. And the other director gets back from Canada. And the book-keeper recovers from his open-heart surgery. Provided they can find the chequebook, in the mess that was left after the sales tax people raided them. Always assuming that the person you want to speak to has returned from a meeting that seems to last as long as the polar night.
Even if you’re pretty innocent, you’ll realise you’re being strung along. Time to put the pressure on! But how?
Usually what happens next in a story like this is that you make a few angry phone calls. In your last call, you threaten legal action. (A message that’s carefully taken down by their 16-year-old receptionist, because everyone else is still in that polar meeting.)
Then you crack. You’ve had enough! You storm down to your lawyer (if you have one — otherwise, you grab the yellow pages and pick one). There, in that comfortable chair, with that attentive face taking it all in, you feel like you’re loading shells into a cannon. They did this, they did that! Great ammunition! Blast them, Mr Lawyer!
This takes an hour. In extreme cases, even two. Your story isn’t that coherent. You haven’t brought any papers — or not enough. Anyway, you now feel better. It’s now in the hands of your lawyer. Now they’ll see! Boy, will they! No messing around with you.
Back at your office, you send copies of the papers your lawyer asked for. You get them out of the office within an hour, and send them to the lawyer by courier. (Why wait for the post? So slow. That might delay things a day!)
A week passes. Surely by now something dire must have happened to those guys who owe you the money? Agitated, you phone the lawyer. His tone jars you a little. Yes, he’s looked at the papers. He suggests that he will write the debtor a letter, saying that legal action will be taken if no cheque is paid within seven days. A little casual and slow, you think — considering those guys deserve, well, death, practically.
It takes another week before he actually sends the letter. How is this possible? Surely, there can be nothing more urgent than your $6200? A whole week, to get a letter out? But you don’t dare resent your lawyer, your main weapon. But still, you don’t feel exactly the way you did at the beginning. A thought — hard to repress — keeps coming up: maybe you didn’t get a tough enough lawyer? But the idea of starting all over…
The letter goes out, and another week creaks by. Nothing. No $6200. No response. Zero.
You can’t stand it! You’ll hit them with a summons! Mind you, you haven’t done this before, and you picture something like a lightning bolt. It will leave them stunned, and just alive enough to beg for mercy and write a cheque.
Actually, what you say to your lawyer is milder: “I believe that a summons would be the logical next step. Let’s hope they respond in a more positive way, so the matter will be speedily concluded.” So rational.
Several more weeks pass. Probably a month. Little by little, your lawyer informs you about the facts of legal life. You don’t get out a summons just like that. (At least, he doesn’t, not with his workload.) It’s a little mysterious, anyway, this summons. You’re not even exactly sure what it… er, does.
But you’re beginning to learn not to press your lawyer too hard for details and petty information. He seems, well, unforthcoming. Sometimes you get the impression that your case isn’t the supernova at the centre of his universe.
In the end, the summons is ’served’. A clear picture, that: an unpleasant-looking individual pounds on the door of your enemy (that’s what he is now). You can visualise your enemy opening the door, turning pale, and receiving the summons with shaking hands. The same effect — you think — as a visit from Al Capone. You feel good all day.
After this event, the excitement never stops. Your lawyer lets you know that the debtor has 21 days to “file a defence” (that’s what you think he said, worked up as you are). Otherwise, you’ll win the case by default!
Plenty of scope for the imagination there. Many the pleasant hour you pass, downgrading your debtor’s intelligence. His days pass dimly, you imagine, his mind consisting of some thin, grey, moronic vapour. So stupid! He’ll be enraged when you snatch that $6200 away from him, just because he couldn’t remember to file a defence! After all, you know the debtor spends all his time in meetings, he can never find anything, and his computer is always broken. How could someone like that ever file a defence?
Unfortunately, he does. Rather, his lawyer does. It’s nothing more than a little note on an official form that says that they intend to defend the action.
Your mood turns grim. The debtor has passed through thunderbolts and a visit from Al Capone, and still hasn’t coughed up the $6200.
Time for a conference with your lawyer. “What do we do now?” you ask. He most likely tells you the next move is to put the matter down for trial in the Magistrates’ Court. (Depending on the background of the case, there are probably lots of other things he could do. But he is an old hand, and knows they’d run your bill up so high you’d have a fit.)
So the case goes down for trial, in six or eight months. And you receive a Statement of Account for Professional Services. $465, including mention of ‘two attendances upon you’ and 15 ‘telephone attendances’. (You begin to wonder if all those phone calls you made, asking all those questions, were a good idea.) You take comfort in recalling the lawyer said you’ll get some of your legal costs back from the debtor, providing you win the case.
Now it’s hard to maintain a heroic posture for six months. Probably you don’t manage it. A week before the trial, your nerves get shaky. After all, you have no idea what you’re in for. (And you don’t feel like pounding the lawyer with questions and running up another bill for telephone attendances.) You can’t shake off vivid images of trial scenes from TV dramas. Terrible cross-examinations, everything checked and scrutinised to the dot. “How do we know that’s really your signature, Mr. Bottomley?”
Probably you cave in. Your lawyer talks to the enemy lawyer, and they suggest a compromise: the debtor will pay you $4500 straight away, and it will all be over.
You’d be wise to take it. That way you’d end up with $4500, less the $465, less another smaller bill for the final work by your lawyer ($120). So you’ll end up with a figure that begins with a plus sign. You don’t end up owing money (an all-too-possible outcome, if you carry on, pig-headed for victory).
But say you aren’t built like that. With you, it’s the principle of the thing. You did excellent work for the guy, just what he wanted, spot on time. He doesn’t deserve to get away with this! You’ll show him what stuff you’re made of.
You plunge into the trial. Amazingly, the enemy defends it, with witnesses and everything. And his lawyer actually makes you sound like you were lying about some things! At least, he made out that what you did or said could have been interpreted another way. All this takes two days in court.
Ah, but you win. Judgment and costs are awarded to you. At this point, the word ‘costs’ has an intriguing ring. You take it to mean the enemy will have to pay the $6200, plus all the money you’ll now owe your own lawyer. (Two days in court. It doesn’t bear thinking about.)
By and by, you get a bill from your lawyer for $4840. And find out you’re entitled to recover $3220 from the loser. It’s what the court scale allows. So you are down quite a bit. Your legal costs are $4840, minus the $3220 owed by the debtor, plus the old legal bill for $465… whoops, not to forget the smaller one for $120. Altogether, you’ve had to fork out $2205 to collect $6200!
Anyway, you’ve taught the enemy a lesson. No one can mess around with you! You’ll even go into the red, and spend lots of time and worry, to punish anyone who tries to cheat you.
Except there’s one problem. When do you get your cheque from the debtor? ($3220 legal costs, plus the $6200.) He lost, the court ruled in your favour. Surely, he now has to pay at once?
Your lawyer explains that you have a ‘judgment’. This means there’s no longer any argument: the debtor owes the $6200, as well as the legal costs the court has awarded you. But now you have to enforce the judgment. If the debtor doesn’t just hand over the money, you have a couple of options, explains your calm lawyer. One, you can send in the sheriff and he’ll seize furniture and other assets the debtor owns. Or you can put the company into liquidation — but then any other creditors will join in and you’ll have to share the spoils.
The sheriff sounds like the best idea. The debtor’s computer, for example. Even if it really was broken, it still must be worth quite a bit. And there must be lots of other stuff in that office.
So your lawyer issues a warrant of execution, instructing the sheriff to seize assets to the value of $9420.
Many weeks pass, then your lawyer phones to say the sheriff has reported there are no goods to seize.
“What!” (And that’s the beginning of wisdom.)
“Unfortunately,” your lawyer explains, “Everything was encumbered. The computer and everything was leased. The company didn’t really own anything. There was nothing the sheriff could seize. The company is just a shell, really. So it wouldn’t do any good to put it into liquidation either.”
Result: your $6200 ’sale’ has cost you $5425 in legal fees.
An extract from “The Debt Book” published in 1990
