Avoiding Rotten Receivables: Getting Paid in the Current Economy

By Jonathan M. Stein
Managing Member of Jonathan M. Stein Esq PLLC

Every transaction is a risk. The biggest and most grave risk is the potential damage to your bottom line and, in turn, the financial health of your company. Non-payment is a reality – the fact is, not every customer is going to pay their bill. It is unavoidable. So, how do you protect yourself? Assume that you’re not getting paid.

If you start out with this key assumption – non-payment – then you stand a much better chance of recovering your receivables in the likely event that there is a customer who’s first priority is not you and the money you are owed. So, make yourself a priority. In other words, make not paying you so untenable and costly in the eyes of your client that they would rather pay you and stiff someone else. One way to do this is to draft your contracts, purchase orders, order confirmations, bills of lading, or any other transactional documents you use on a regular basis as if they are going directly to your collections attorney.

In my opinion, a collections attorney is superior to a collections agency for a multitude of reasons. First and foremost, if a client is not answering your letters and phone calls, they are probably not going to answer letters and phone calls from a third-party that doesn’t have the power of the law behind it. And time is of the essence. While letters and phone calls are being sent, made, and ignored, your receivables are aging – and receivables do not age like wine; they rot like fish. A lawyer’s letter, or a summons and complaint, gets immediate attention. Getting their attention is just the first step.

When your client’s attorney reviews the documentation memorializing the transaction or transactions in question, their attorney has to know that your client is going to lose in court – and that a legal battle is going to be costly. A client will typically ask their attorney two key questions… 1) can we win and 2) how much do you think it will cost. The more uncertain the answers, the more likely it is that you will see that money. Reciprocally, your attorney has to know that you are going to win and that a legal battle is worthwhile. Therefore, your documents must be litigation friendly – for your case.

Built in attorney’s fees, jurisdictional and service provisions, waivers, time limits, liquidated damages, and other pertinent language (properly tailored for your unique company and industry, enforceable, and reflecting the current state of the law) will give you and your attorney the ammunition necessary to put you in the dominant litigation position. But, these provisions are useless if your client won’t agree to them – more so if the terms appear so oppressive that they won’t even do business with you. Thus, selecting the right attorney is critical. The right attorney will know how to strike a balance between client comfort and the security of your bottom line. There is no magic formula or standard procedure for striking this critical balance – there is only experience.

Plan ahead; plan to win. Assume the client is not paying and prepare accordingly. Make sure your contracts stack the odds of winning and enforcing a Court case in your favor, but not at the expense of business relationships. Use an attorney who can both draft your documents and litigate your case. Make paying you a priority.

Jonathan M. Stein is the managing member of Jonathan M. Stein Esq. PLLC, a law firm offering debt collections services and other business advisory services including receivables management. Jonathan is a graduate of Brown University and Hosftra Law School.

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