How To Collect Business Debts (Part 2)

Credit Dictionary
Accounts Receivable: credit extended by any person or company to another (normally unsecured) with .....

Big Debts Owed By Individuals

1. You can try steps 1 to 3 above. But don't let too much time go by doing that. Instead, go straight to...

2. Call in to see them. Call in at work, or at home, or wherever you can find them. Not many people can stand the pressure of a personal call. And remember, this is a big debt -- one that's important to collect. The best way is to collect it yourself.

Little Debts Owed By Companies

1. Make sure they have at least one letter from you, firmly but pleasantly asking for the money. This means a letter -- not one of those stickers you put onto copies of your invoice. ('A friendly reminder' and so on.)

2. Try wearing them down with telephone calls. Phone daily, even twice a day. (Not the most popular job for someone on your staff, but it's the only cheap way to collect small amounts.) Don't threaten anything: instead, moan about your own cash flow, or say your accountant wants to square up his books, or whatever sounds OK. They may pay faster than you expect: some large companies keep a log of demand calls, and after you've logged in a certain number, you get your cheque.

3. 'Offer' to send around a courier. This often breaks through their weaker excuses and exposes a realm of truth: they might tell you they're having temporary cash-flow problems, and that the account will be paid within two weeks.

Solving Credit Problems
If you are having problems getting credit or paying your monthly bills, you may be tempted to turn to businesses that advertise .....

Big Debts Owed By Companies

1. Try steps 1, 2 and 3 above (for small debts owed by companies). But go through the steps faster. This is a big debt, after all. Don't mess around too long before you...

2. Go and see them. Make an appointment with the credit manager. If you get a lot of excuses, just go without an appointment, unannounced, and plop down in reception. Be polite and smile at everyone. Look like you're prepared to spend the day. Take something to read, or even a laptop computer and do some work. Sooner or later someone will see you. Then you'll either get a check, or you'll find out what you're really up against.

TIP: if a big debtor is in financial trouble, and you push him hard, he might find something 'wrong' with your product and offer part payment. Your product was faulty, or your service wasn't up to scratch -- or whatever. This is face-saving. But it offers an easy chance to get most of your money.

Consider his offer very seriously. Believe me, it can be the best thing you can do. You'll probably still end up with a profit on the deal. (And he'll be happy, because he's got a reduction.) You'll have saved yourself a lot of time. And you'll probably get more money from the debtor than you'd get in any other way. Also you'll come away feeling like a good guy. You're reasonable, you can compromise. Do it! Do it! Don't get involved with law courts and endless hassles if you can avoid it. Pride can be very expensive.

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, could I have a check 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 that 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. That's what I do. I press debtors to a certain extent -- then just throw up my hands and let the professionals go after them. The peace is wonderful.

4. Getting Rougher: The Counsel Of Experience

SO MUCH for preaching. You probably didn't buy this book to hear you should tighten up your credit system, or to find out a few new tricks to collect debts yourself. Let's say you've done all that and it didn't work. Someone owes you money, and it's turning into a hard case. What next?

I'll take you through the possibilities. I'd better say that I've used the methods I'll tell you about. This isn't theory. It's experience.

My business is writing things for people. (Brochures, speeches, articles, reports, ads, marketing letters, and sometimes books.) Believe me, all kinds of people phone and ask me to do jobs. . My clients range from individuals, to some of the largest international companies. The big companies aren't always prompt payers. And the individuals -- wayward as they sometimes appear -- are often OK. Very hard to predict. And I had plenty to learn.

For this book, I also interviewed all sorts of people: debt collection agencies, private investigators, a magistrate, sheriffs, and lawyers. They were happy to help. They told me it was about time someone did a realistic book about debt collection! And they gave me an earful -- valuable information, worth a lot to me in running my own business. I'm now sharing it all with you.

In the next chapters, I talk about how to collect the difficult debts. Wild waters.

5. Using A Lawyer

YOU CAN TRY asking your lawyer to send the debtor a letter. The idea is to startle the debtor into paying. This sometimes works.

Sometimes a lawyer is willing to write a letter that begins like this: "We act on behalf of Minimax Circuits Pty Ltd. We are instructed that you are indebted to our client to the amount of $1200."

And it ends something like this:

"We advise that if the sum of $1200 is not received by our office within fourteen days of the date hereof, our client will issue proceedings against you for that sum without further notice to you."

Your lawyer hasn't insisted on knowing what the matter is about. He (or she) just sends out a letter. Even so, a letter like this isn't free. Make sure you know how much it's going to cost. And weigh that against the size of the debt. And think about the psychology of the debtor: is he used to getting letters like this? Will he just shrug?

If you want to use this technique regularly, you may be able to work out a deal with a lawyer. A bulk rate. But usually you'll get the same kind of reaction you'd get from a doctor if you phoned up and asked for a prescription for double-strength penicillin, without saying what your symptoms were. He'd want you to come in and be examined first. Similarly, lawyers didn't spend all those years in law school to be asked to write letters without getting any background.

From the evidence I have, the success rate for a straight lawyer's letter isn't too high. (But as one lawyer told me: "It depends on the nature of the debt and to whom it is owed. Obviously, if the debtor thinks he has a good defense the letter will draw no instructive response...")

But if you continue to the next step, and get your lawyer to send a summons, that often does the trick -- especially for a debt that's only a couple of thousand dollars. Your expenses have gone up, though: there are some court costs, more lawyer's time, and the cost of getting the summons served. Worse yet, if your lawyer insists on getting stuck into the case and finding out what it's about, you could be up for hundreds of dollars just to get a summons served.

Remember, we're talking about trying to startle the debtor into paying. You realize it's not economic to carry the legal process any further: the sum you're chasing is too small, or you suspect the debtor hasn't got much money anyway. You're hoping to jolt the debtor into issuing you a check (and probably put off paying someone else). Shock tactics.

If the debtor doesn't pay when he gets a summons, then -- if you wish to -- you can normally just let the matter die. You don't have to list the action for trial.

If the debtor wants to be difficult -- or stand on some high principles -- he can list the matter for trial himself. (But as you might imagine, this doesn't often happen.) A slight danger is that the debtor will later apply to the court to have your action formally dismissed (for 'want of prosecution'). This makes it extremely hard, or expensive, to sue him for the debt later, if you discover he actually has some money. Also, the court may 'award costs' in the debtor's favor -- so you'll get a bill for some part of the debtor's costs in getting the action dismissed. And you have to pay it.

In short, matters are not always 100% under control, even when you only threaten legal action. But as you'll see in the next section, if you decide to drive the legal process all the way to the court, your steering wheel can snap off completely.

When You Expect To Go To Court

TWO important points, right away:

1. Ask your lawyer to request a pre-hearing conference at the court. Ask him to do it as soon as he can. If the pre-hearing conference is granted, it usually speeds things up. And it can save you a lot of money in legal fees and court costs. More on this later.

2. Check that the debtor will be able to pay you when you win your case. (Don't expect the lawyer to check on this.) If necessary, hire a private investigator. Find out somehow! There is no point spending money -- and your time -- to get a court judgment, only to find out the debtor can't pay you.

How To Save Some Money On Lawyers' Fees

IF YOU LEARN to behave like a lawyer's ideal client, your bills will be lower.

Consumer Rights
The FCRA grants you a number of important rights, including:

The right to know what .....

Don't present your lawyer with a half-crazed story, full of sound and fury but with no legal value in it. First write out what happened, in full detail. Get it typed. Make sure it's very clear.

When you get to a point in the story that you can substantiate with a document, refer to the document in the text. ("See the Contract, document A.") Put all these documents in order, with the story on top, send them to your lawyer and ask him to read them.

After he's done that, then make an appointment to see him. You'll be amazed at the difference this makes. The meeting will go fast and smoothly. The lawyer will ask you about any points that aren't quite clear from the papers you gave him.

From then on, keep in mind that your object is to get the debtor to pay you. Don't get so wrapped up in the proceedings that it becomes a mission to punish the debtor.

Anywhere in the proceedings, the debtor's lawyer may suggest a compromise. Think very carefully before you turn it down. Your legal costs will never be any less.

The more you can bury your pride and anger, and see the whole business as a procedure, the more likely you'll come out ahead. It also means less time spent talking to your lawyer about what amounts to your emotional reactions to the whole business. He'll listen to your problems, and guide you away from irrational decisions -- but it will cost you.

Keep your cool. Treat it like a game of chess.

The statistics are good: less than 10% of the Magistrates' Court summonses for debts ever go to trial or to arbitration at the court. The rest are settled before they get that far.

What The Lawyer Is Thinking

YOUR LAWYER doesn't want you to hit the roof when you get his bill. So if you're just chasing a few thousand dollars, he probably hopes that the debtor will make some acceptable offer before the trial. He knows this would be to your advantage. Your legal costs would probably then be reasonable, measured against the amount you'll collect.

The debtor's lawyer is thinking the same thing. Sure, the debtor has some kind of defense, but his lawyer doesn't know if it will stand up until he looks at all the details. These things are always more complicated than the client can imagine. In law, practically everything is arguable. There's no way the debtor's lawyer wants to spend huge amounts of time on this either, and run up a colossal bill, if there's some hope it won't be needed.

Upshot: the lawyers on both sides tend to do the minimum, just shadow-box for a while. To both of them, it's a fight about a small sum (a few thousand dollars). They can't afford to sink a lot of their client's money into the sort of pre-trial preparations you see in Rumpole dramas.

Usually, very little happens until about a week before the trial is due to begin. Even if the trial looks like going ahead, the lawyers still won't do as much technical preparation as they could. For a debt of say $6000, their clients just couldn't afford it. So your lawyer isn't going to look into every possible 'cause of action' and the debtor's lawyer isn't ......