How To Collect Business Debts (Part 1)
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This document tells you what debt-collection methods there are, how well they work, and how to choose which to use. You're in for some surprises. A lot of this material comes from behind the scenes: straight from lawyers, court officials, private investigators and debt collectors -- talking informally and bluntly.
What you'll gain from the book is increased profits and fewer worries. And if you're new to all this, it could actually save your business.
Introduction
(1) This book is copyright, but you can make any 'fair use' of it under copyright law. That of course doesn't include poor-attitude things like re-publishing the work (or parts of it) and claiming it's yours, or putting parts of it in some other document or website and implying you wrote those parts, or using any of it in a publication that you sell. You get the idea.
(2) This book was published in 1990 under the title "The Debt Book" and is based on the law in Victoria, Australia. It's likely to be out of date in a few small ways, even in Victoria (though Victorian law, like most law, evolves slowly).
(3) Many of the debt-collection principles in the book are universal, and some probably would have worked well in ancient Thebes and Babylon. But don't expect the details about court procedures and such things to apply to you -- unless you live in Victoria.
(4) Lawyers have checked this book, and so have debt collectors and other pros. But I'm not a lawyer and don't claim that the general information in the book will work in any given situation. If you have a legal question, see a lawyer.
(5) Which brings me to this lovely wet-blanket statement that you'll enjoy reading: All information and advice in this book is provided without any responsibility or liability on any account whatsoever on the part of the author or the copyright holder or the book publisher. Also, the names of people and companies used as illustrations are fictitious and any resemblance to real people, living or dead, or to real companies is purely coincidental.
(6) If you want to know more about me for some reason, see this little bio.
(7) If you want to check that you're looking at exactly the same book I put on the web, here's a PGP signature of the DebtBook.html file.
(8) If you'd like an original copy of the printed book, I regret that you can't have one: it's been out of print for a long time. But if you're in Victoria, there are copies in the library system. The Western Australian edition can still be ordered from Viacorp.
1. 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.
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"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 realize 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 center 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 visualize 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 defense" (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 defense! 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 defense?
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 attendance's.) You can't shake off vivid images of trial scenes from TV dramas. Terrible cross-examinations, everything checked and scrutinized 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!
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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 check from the debtor? ($3220 legal costs, plus the $6200.) He lost, the court ruled in your favor. 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," ......
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