Don’t sue George when Harry owes you the money

IN FARAWAY Debtland, there is a place where you’ll find the bones of people who have chased the wrong debtor. It is impressive to look at the bones. There is a mountain of them. Unless you’re careful, your bones will make the mountain a little higher.

Why? What’s the problem?

Thousands of people commence proceedings on someone that’s simply not involved! It may take a long time to find that out. It may cost them thousands to find out. And it’s all money lost. They can’t get back a penny.

If you’re handling the legal action yourself — and that’s what we’re talking about – then make sure you go after the right debtor. If you start on the wrong foot, even if you bring in a lawyer or debt collection agency later, they probably can’t fix things. You’ll have to start over.

Here are some of the ‘people’ you can sue:

An individual. Mary-Sue Goodheart. Or Doctor Xavier McPherson. You sold the person something, or did the person some service, for an agreed amount of money. And the scoundrel didn’t pay. Right. That is who you are chasing for monies owed.

A sole trader. A sole trader may have a trading name: Black Hole Earthmoving. Forget it. Just go after the person behind it — the individual.

A partnership. Dangerous waters. There can be two partners, or twenty — or sometimes thousands (as in the big accounting firms). You probably only dealt with one of the partners. Or even just someone who works for the partnership. But someone there owes you money. The safe thing to do is ensure you know the details of everyone associated: all the partners as a group, and each of them individually, and also the guy you actually dealt with (if he isn’t a partner and already on the list anyway). That way you’re covered. No one who might be responsible (or own something you can seize later) can wriggle out of it.

A company. If you are sure that you have really been dealing with a company as such – maybe by running a company search in the first instance.A company has a life of its own, legally. It’s like a person who can’t die, even if the directors die (they are just replaced by other dispensable mortals). It’s true that you can kill (liquidate) a company, but you don’t do it by killing the people who run it. Legally, a company is very real. It can sue. You can sue it. The company itself can owe you money, no matter how the people who work for it may come and go.

A trust. There are a lot of these around. For example, : “1234 Ltd as trustee for the James Heath Family Trust”. Trusts usually have a trading name tacked on. In a trust, its trading name is “J&E Copywriting.” If you sold something to J&E Copywriting, and you got no cheque, who should you sue? The answer is: that whole long name. You can tack on the trading name too, but it doesn’t matter. On the documents you might also use a few abbreviations: “1234 Ltd ATF James Heath Family Trust TA J&E Copywriting”.

Technically, you could just commence proceedings against 1234 Ltd, but that gets messy because 1234 Ltd might be doing something in addition to acting as a trustee. It could be acting as a trustee for several different trusts, or it could be trading in its own name — selling used 747s, for example. It might take a lot of sorting out in court to determine which of these trading entities actually owed you the money. Better to be clear, if you can. It will be cheaper.

There are other wrinkles to this as well. The trustee of a trust doesn’t have to be a company. It might be two or more people, acting as trustees. For example, if my Family Trust got fed up with 1234 Ltd as a trustee, the Family Trust could chuck out 1234 and appoint new trustees: my wife and her brother, say.

If all this doesn’t get you worried, it should. It explains why lawyers and GOOD debt collection agencies are so careful — right at the beginning — to try to pin down exactly who owes you the money. If a company is involved, or seems to be, the agency or lawyer will do a search to see what the company structure is. He will also trace through and see who is behind a business name.

Even so, it may not be clear who the debtor really is. Is it cunning Mr. Bloomhardy himself, who bought those 500 bags of cement from you? Or was it really his company, Bloomhardy & Foolhardy Ltd? Nothing was put on paper. And your recollection of what Mr. Bloomhardy told you, and what you told him, is getting hazy. 

This uncertainty can seem amusing when it happens to someone else.

But beware: it’s no fun at all when it’s your money and you chase the wrong debtor. Be careful.

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.

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

Collecting Your Debt Earlier and Easier

1. Be prepared to discuss past due balance with debtor/customer

Be prepared when you make the call or speak to the customer in person. Have the debtors file or screen in front of you. If you sound or appear unprepared you will give the customer the impression that the balance due is unimportant to your office and the debtor will not take you seriously.

2. Listen to the debtor/customer

When calling the customer about their past due balance, identify yourself, state the reason for your call and then say nothing allowing the silence to work its magic. The debtor will eventually speak and will continue to speak if you do not feel the need to fill the silence. You will get more information than you need. Use open ended questions. Do not interrupt the debtor, Long pauses are crucial. Repeat back what the debtor has shared with you to confirm your understanding.

3. Never take anything the debtor/customer says personally

When customers are unable to pay their balance they can become embarrassed, fearful and angry. The customer may feel desperate and may lash out, understand that these emotions and their comments have nothing to do with you.

4. Ask for a payment date

Ask the customer when they will be paying their overdue balance . If not immediately ask the customer to call you on the date they have given to confirm payment is being made and how.

5. Establish a payment schedule if necessary

If a customer has a legitimate financial or personal problem that is causing them to be delinquent tell them that you are sorry that they are experiencing difficulty and offer a payment schedule. Explain that despite the problem the balance still needs to be paid and you will be happy to set up a payment schedule.

6. Address disputes

If your customer claims they have not paid due to a dispute, problems with the service, not received the account etc., address their dispute immediately. Be sure to get back to them quickly with a resolution or response. Then ask for payment. If you can’t “fix”

their problem suggest the debtor pay the undisputed amount while you resolve the problem or you could offer a discount to collect the balance quickly and settle the matter then.

7. Stop service

Should the customer become evasive and not work with you to resolve their outstanding balance, Immediately stop supply.

Go back to step 4 and don’t get off the phone until you have all of the information your require. This may be the one and only opportunity to have contact directly with the debtor.

8. Realise when it’s time to place your claim with an agency. 

Know when you are beating your head against a brick wall.

Access the balance due versus how much time you have put into your attempts to collect the balance due. A reasonable time frame to place your claim with a collection agency is 90 to 120 days past due. Early placement generally provides greater recovery results.

You have good paying customers to focus on and dealing with your past due receivables takes you away from them and from maintaining the business cash-flow. The older an account becomes, the harder the debt becomes to collect and the less it’s worth.

9. Using a debt collection agency

Agencies offer a lot of advantages and incentives for your debtors to pay their bills that a company themselves can’t give. In addition to delinquent accounts, collection agencies can help an account from becoming delinquent. They can run credit reports to see if a customer may be getting into difficulty or has the ability to pay a long term payment plan.

They also have skip trace resources to find your debtors after they’ve moved

A debt collection agency can instill a sense of urgency with a debtor that the business has difficulty in doing. By direct contact the agency can handle the debtor with a personal and professional manner while all along putting the debtor in the position to act on to resolving their debt and being made aware of their options and the consequences they may face if the outstanding account is ignored.

It’s much harder to for a debtor to ignore an effective collection agent, than it was to throw away the bills. Many debtors fear that once the account has gone to a collection agency that it’s already affected their credit. The debtor gets their first collection agency letter and all of a sudden they’re eager to pay the debt to avoid their credit being affected in a negative manner or as many of the debtors think, to get the credit report cleared. Many agencies, believe if they report to the credit bureau which most good ones do, they don’t do so until their efforts have failed to resolve the account. But many debtors don’t realize that. Let’s keep it that way.

Your debt recovery agency will usually have the ability to report to the main credit bureaus. This may help in the future such as when that young adult who thought they were bullet proof when they were younger and irresponsible, have to now pay for the consequences of their past. Particularly when they want to get a mortgage, car or any type of credit extended to them, they may have to resolve your debt to do so. Some debts have been resolved 5yrs down the line in cases such as this. There is so much that a good agency can provide your business. A good tool is to get signed up with an agency ahead of time, and to forward the delinquent accounts in a timely manner as they come up.

DebtForce appreciates the faith it’s clients places in them when passing files over to us . We realise you have many agencies to choose from but have entrusted the task to us and we will do our utmost to maintain that confidence.