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
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Debt Collectors Daily Blog
Okay today was a tough one, it wasn’t so much the debtor whom we sent a please pay letter to screaming at me on the other end of the phone about sending this kind of rubbish it was more the fact that she then told me she couldn’t afford to pay the bill and that they were eating roadkill for dinner……. after working in this job for the past four years that was a new one.
Trust me I have heard almost every excuse in the book when it comes to non payment or missed payment or not the amount they agreed to the first time you spoke payment, and there are ways around this kind of repetitive behaviour, when you are dealing with a debtor try the three strikes and your out method.
- Contact the debtor and organise payment in full or part payment, give a deadline usually end of the month – if they don’t make payment follow step 2
- Contact the debtor the day payment doesn’t come through, put it on your outlook as a reminder if you don’t have something in place, find out why payment not made, if they forgot…ask for credit card info as a back up and get the initial agreement reestablished,do not reduce the payment amount and tighten the time frame, give them one week from when you spoke.
- No payment again, ring the debtor find out why if they forgot ask about getting a payment today through the credit card (if you got the details) and then get into the official arrangement. ask the questions are they having financial problems? Can we set up a payment arrangement?, (if a company debt try to get extra security like a personal guarantee) advise them that if it doesn’t happen this time you cant help them any longer and company policy dictates three strike method and that they have already had two…..this should get something happening…..
If nothing, send it to your agency that week, they miss that payment they are not going to be making one the next day or next week send out the debt letter and get it off your ledger you can at least you can say your being proactive instead of reactive.
Successful Debt Management
Is your business cash flow secure? Can a professional debt collection company offer you peace of mind by securing your cash flow?
We all understand the principle of business is to provide goods or services to a group of chosen customers or, more often, those customers that choose you. Along with that first principle is the belief you will be paid promptly when agreed and quite rightly so, but so often there is a percentage of any company’s clients that simply do not.
Cash flow is made up of prompt customer payments for those goods or services provided and without it the business is immediately in danger. After all, we are talking about the cash in the business that allows for daily running and accurate projections for the future of its business growth. Every debt, no matter how small, is important to profitability, particularly in times as they are right now.
I have been in the credit, security, and investigation industry for over 30 years, working for some of New Zealand’s largest companies. Yet it never ceases to amaze me that businesses do not seem to appreciate that they need to protect and secure the unseen cash in their debtors’ ledger. It’s the unmanaged, unprotected back door where the unseen losses can occur. Read more
Does your credit application and terms of trade work when it has to?
In times like these, every business dollar has to count and the loss of any cash out the back door by way unpaid accounts places needless pressure on the business cash flow. The provision of credit remains the foundation of the `Money Go Round’ for New Zealand businesses, enabling one entity to do business with another while providing goods and services on a basis of trust, but those goods and services must still be paid for within an agreed time frame if the business is to survive.
In a perfect world it’s a great arrangement – that is, until the unscrupulous take advantage and break the rules forcing the business to protect its income by minimising its exposure. To protect itself, a business must actively take steps to mitigate loss or potential future losses caused by customers who do not pay on time or in some instances not at all.
In my capacity as Managing Director of DebtForce Limited, I see a great many companies spending thousands of dollars on loss prevention methods at the front of their business but fail to see what is slipping out the back door when the credit application and terms of trade are ignored.
Indeed, It never ceases to amaze me how overlooked the importance of the Credit Application is and how businesses are all too often prepared to spend more on other documentation instead. As a result, businesses are often left open to exploitation due to deficiencies in the document, or when there is no document at all.
There are a number of professional debtors who are experts at exploiting the weaknesses of a company’s credit agreements and its credit approval processes which often allow the debtor to walk away from overdue accounts. Unfortunately, in such cases, the law does not view such matters in the same light as shop theft, for instance, though in my opinion, it is much the same.
A credible credit application and terms of trade document should always be the critical starting point to covering that back door risk and a well designed document can afford good protection and suitable remedies when required when managed correctly. The receiving of the signed credit application is only the first step in the credit approval process, before the formal information vetting of the application can commence.
So without a doubt, the credit application is absolutely necessary and becomes an insurance document, legally binding both parties once it has been signed by an applicant and accepted by the company. If future court proceedings are issued to recover overdue monies, this document will play a significant part in those proceedings so it needs to be right.
Design and content of a credit application and terms of trade document should not be under estimated. It should reflect and accurately record the company’s credit policy, operation, and terms of credit provision.
The application needs to indicate immediately to any potential customer that the business is just as serious about enforcing its trading terms and conditions, including the collection of overdue accounts, as it is in selling its products or services.
There are many government acts, administered by the Ministry of Consumer Affairs, that must be complied with when providing products or services, and these should be part of any credit application. However, these compliance rules can vary considerably depending whether the goods or services provided are for ordinary consumer use or are strictly for commercial purposes.
Whatever the end use is likely to be, the finished document needs to clearly define what rights or remedies the customer may have under those appropriate circumstances. It must also establish the rights of the business and the rules under which they are prepared to extend credit and expect payment, as well as the action that can be taken should the customer default on payment. The application and terms and conditions need to be clear, concise and understood by all concerned.
The success of any business can depend on this document and no customer should have a credit account established without signing a credit application and the appropriate credit checks having been conducted. Having an unsigned application is like having no application at all as you may have default of payment remedies in the application but they are toothless if the application is not signed.
When trying to recover debts for businesses, DebtForce personnel see many credit applications that contain a lot of information provided by debtors that is absolutely pointless in that it can never be used to recover the debt because it is subject to the Privacy Act or client confidentiality restrictions.
Ensure the questions on your credit application form bear some relevance to the information you need to both fully qualify the entity applying for credit and for obtaining information that could help locate a defaulting customer should it become necessary later. For instance, an applicant’s date of birth is of more importance than the name of his accountant and bank manager.
Initially, the objective is to clearly identify the legal entity of the proposed customer as this will determine the type of information that is needed. An individual applying for credit has a different range of information requirement to that of a company, meaning what may be relevant for one entity does not apply to the other, and the laws of civil enforcement vary accordingly.
There are many other types of entities such as Trusts, Incorporated Societies, and Marae’s where it is often hard to identify just who the legal applicant may be. In these cases, credit applications should only be approved by someone who understands these entity structures.
The actual terms of trade for the business providing credit can be simple if the operation of the business and the products and services offered are relatively straightforward. But where the product offered is of high value or the services varied, then the business needs to account for any eventuality in its terms of trade.
This is important but, at the same time, the credit application form must remain easy to complete and its terms and conditions readily understood. Don’t be tempted to copy another company’s application as it is unlikely to completely fit your situation and so there is a chance it may not be enforceable when needed.
It is recommended that the format of every credit application be reviewed at least every five years to ensure it is kept up to date with current legislation. The process should also include a revision of the current customer information held to ensure the original applicant remains the same company initially approved.
If an account application is not renewed at the time a customer’s business changes hands, a messy situation can arise whereby the new owner may not be responsible for the account still held in the name of the former business. With neither the former business existing any longer and the new owner not having signed a new account application, the recovery credit monies can be difficult if the customer defaults.
When it does come time for reviewing or preparing an application, use professional organisations such as reputable debt collection companies that provide the service or solicitors that have civil litigation experience. They have a great deal of knowledge of what works and what doesn’t, as well as experience of the court process and outcomes based on the experiences of their own clients.
There are many clauses that can be included into terms of trade and the preparation of these is a very specialised area where mistakes or exclusions can be very expensive. The inclusion of clauses that stipulate that the defaulting account holder pays all the costs of recovery including legal fees, can save a company thousands of dollars and enables them to be more aggressive in recovering overdue accounts.
The inclusion of clauses that enable the business to conduct enquiries as to the credit worthiness and integrity of a potential account holder is also important as unless such enquiries are undertaken, the credit application is of little use.
However, while it is prudent for permission to be obtained for those enquiries to include officers of a company making the application as well as the company itself, be very wary of such clauses as any authorisation given by the signatory of the account application to access to another’s personal information as it does not conform with the requirements of the Privacy Act.
It is also prudent to have additional security built into the application by way of personal guarantees or by securing the goods themselves through the Personal Properties Security Register (PPSR). Both of these need to be considered carefully for if they are not documented correctly, they will have no legal standing when needed.
The personal guarantee, when included in the account application, must be distinctly separate to the application so there is no confusion as to what the guarantor is signing. Segmentation of the guarantee provision is not the only essential matter for a binding guarantee. There also needs to be terms and conditions within the guarantee relating to payment defaults, and the remedies for recovery against the guarantor which must also be set out within the guarantee itself.
This is crucial since each entity bound by the document, must clearly sign to those terms with the company being bound in the credit application itself and the guarantor separately bound by his or her guarantee.
Protective measures implemented under the Personal Property Securities Register (PPSR) should ensure all goods supplied to the customer be registered by way of a financing statement that primarily authorises the ‘giving of security’ over those goods by the customer applying for credit. But it is important that the requisite clauses are contained in the agreement at the time the customer signs it and not some time later.
Secured goods can then be reclaimed by the creditor in the event of default or the security can be renewed as circumstances change. Although this registration process does not guarantee your goods will be paid for, it does provide a creditor with a greater degree of comfort and security than would otherwise exist.
In summary, the credit application performs many functions and, when prepared correctly, can provide the business owner with some confidence that any potential losses out the back door are minimised.
For more information about assessing your credit policies and documents or to recover overdue accounts, contact DebtForce Limited at 0800-332 836 or email enquiries@debtforce.co.nz or visit www.debtforce.co.nz
By Steve Huggard
