Lober Dobson & Desai LLC
Attorneys at Law
Atlanta | Macon
CUSTOMERS WHO DON'T PAY
Every business entity’s ultimate
goal is to be profitable. While there are a number of obstacles ranging
from management to operations, one area of loss that is often extremely
frustrating is delinquent accounts or customers that do not pay.
Take ABC Company for example. ABC is in the copier business where
it sells and leases copy machines to businesses. The owner of ABC
Company doesn’t really have
a contract with any of his customers but because he’s been in the business for
a few years and he has a good working relationship will all them.
He bills them when he remembers and his customers pay when they are in the neighborhood.
One day, one day he realizes that one of his largest customers has not paid him for
services in six months. He tries to contact them, but the phone number is disconnected.
What does ABC do now? Does any part of this scenario sound familiar? If so, your company
may be vulnerable to swallowing the cost on uncollectible accounts.
There are a number of ways to deal with this issue, both proactive
and reactive. Here are some things a business owner can do to avoid problems or at
least be better equipped to tackle those problems down the line.
- Always have your
customer sign both a credit application and a contract. These two
items can even be part of the same document. Items to include in
the credit application are: address and phone number of the corporation or individual
customer; banking references including account numbers, phone number and a contact
person; and trade references with phone number and a contact person. These bank and
trade references should be checked to see that your customer has an active account
at the bank that they listed and that their trade references have positive things to
say about your potential customer.
- Your contract should have terms that spell out when
payment is due, late fees, an interest clause, and a provision providing
for attorney's fees.
- Confirm the legal status of your customer, i.e.
corporation, partnership, sole proprietor, etc.
- Finally, your contract
should always have a personal guarantee if the corporation or other
legal entity is the customer. Make sure to collect home the address, telephone number
and the social security number of the individual giving the personal guarantee.
As important as taking these preventative
steps, is the constant monitoring of your customer accounts. Make sure
that accounts are reviewed constantly and that that customers are billed frequently and
regularly. Do not let customer accounts age without action. Your company is not in the
business of giving its customer’s
free loans. In addition, with respect to the payments that are received, always make
copies of the checks your customer pays with, and be alert for your customer switching
banks or paying with a check from a different company.
When, you have determined that you have a delinquent account, there are a number of
further steps you can take.
- Be polite, yet firm with your customer.
Identify why the customer is having a problem paying. Keep notes
of these conversations and even confirm these in a letter to your
- You may consider having your customer sign a promissory note for the amount due.
This keeps them from later complaining about your products or services.
However, you should consult a lawyer before entering into such an
agreement as there are some legal nuances involved.
- Finally, don't let your accounts age too long without referring them to your lawyer.
There are a number of steps your attorney can take including writing
demand letters and suing the customer.
- If you have obtained a judgment against a customer and you find it difficult to
collect the amount that you are entitled to, lawyers can also assist
you in collection matters. They are able to investigate assets that the customer has
and collect on judgments through various legal avenues.
Awareness of the steps you can take to protect yourself
is a tremendous asset to your business. Not only will you establish good
business practices, but those practices and diligence in carrying out those basic preventative
measures will benefit your company multi-fold in the end.