We all have high expectations in our business relationships, and we certainly have no desire to deal with those who don't pay for services rendered. Ideally, every client would pay on time, within the terms of their agreement. Unfortunately slow or non-paying clients can't be 100% avoided, so there may come a time when you need to deal with the issue of debt collection. Recourse for Non-Payment The good news is that there are steps you can take to help resolve non-payment issues. For starters, we recommend that you initiate your own collection process, which involves contacting the delinquent party through phone calls and a series of progressively demanding collection letters that are sent out at strategic intervals. You also have the option of utilizing the services of a professional collection agency for help. Notary Signing Agent Section members can now take advantage of an exclusive new benefit that provides specially discounted rates for debt collection services with Fidelity Information Corporation (FIC). Other recourse options may include filing a suit in small claims court, hiring an attorney or in the worst case, writing the account off as bad debt. To begin the process of managing your delinquent accounts, review the options outlined below: Options for Resolving Non-Payment Issues 1. Initiate Your Own Collection Process 2. Use a Professional Collection Agency 3. Take Action in Small Claims Court 4. Hire an Attorney 5. Write Off as Bad Debt 1. Initiate Your Own Collection Process Immediate Action As Collection Tip #2 advises, you should know your payment due dates for all clients. Take immediate action to initiate your own collection process as soon as any payment becomes past due. Initial Phone Call Within the first week after a payment deadline passes, make an initial call to your client to find out why you haven't been paid. Contact If you are able to contact the delinquent party, be sure to speak with the right person. Explain politely that payment to you is past due, and you are calling to learn why. Compromise Clients can give many reasons for not paying — some valid, some not. They may dispute some of your charges, claim you made an error, or give some other reason for not paying. Whatever the excuse, there may be times when you will simply have to compromise by agreeing to accept less than you originally billed for. If compromising means the difference between a partial payment and no payment at all, then you definitely want to agree to the partial payment. Verbal Commitment If, at any time during your collection process, you obtain a verbal commitment from the client to pay you, immediately send a confirmation letter that outlines the agreement reached. The letter should reference your invoice and state the exact amount to be paid, as well as the specific date by which payment is due. Collection Letter Series If your initial phone call to the delinquent client does not result in payment within 10 to 15 days of the invoice due date, initiate your series of collection letters. Collection Letter Series Your collection letter series consists of four letters — Reminder, Inquiry, Appeal and Ultimatum — that start out soft and become more aggressive as demand for payment escalates. Each letter is followed up by a phone call where you will attempt to confirm receipt and obtain a commitment to pay. Examples of these letters are located within Collection Letters. Use them as a starting point and modify, where necessary, to match your particular circumstances. Recommended timelines are indicated below. You can follow these guidelines or modify your collection cycle to fit your specific situation. Regardless of the number of days you choose for your collection cycle, be sure to keep it wellmanaged and short. Initial Reminder Letter Mail your initial Reminder Letter about 10 to 15 days after your invoice due date, as a friendly reminder that payment is due. Within 2 to 4 days of mailing the Reminder Letter (allow enough time for letter to have arrived), call your client and attempt to obtain their commitment to sending payment by a specific date. Inquiry Letter If your client has not responded with a commitment or payment at 30 days past due, send out a second reminder or Inquiry Letter. This letter asks if they've forgotten about payment, and inquires whether there are questions or concerns that are preventing the issuing of your check. Again, 2 to 4 days after mailing the Inquiry Letter, call the delinquent party and attempt to obtain their commitment to sending payment by a specific date. Appeal Letter At 45 days past due, it is time to become more aggressive. The Appeal Letter adds the dimension of appealing to the debtor's business pride and sense of fairness. It emphasizes your commitment to performing your services in good faith, and appeals to the client to pay up in order to preserve a friendly, ongoing business relationship. Send this letter by certified mail. You will receive a return receipt that indicates the letter was delivered as addressed. This receipt can be used as evidence of demand for payment, if you decide to take legal action later on. This letter should also be followed up with a phone call (as before, allow enough time for letter to have arrived prior to calling). Ultimatum Letter At this point, your payment is now likely to be two or more months past due. This is the time to send a final demand or Ultimatum Letter that gives your debtor a final chance to pay before you escalate the situation to the next level. In this type of letter, it is essential to let the delinquent party know just what to expect if they fail to reply with payment by a specific date. Therefore, you will need to decide what your next step will be (e.g., collection agency, small claims court, attorney, or other). For example, if you decide to use a collection agency, your Ultimatum Letter will state that the account will be submitted to a professional debt collection agency if payment is not received by the specified date. Send your Ultimatum Letter by certified mail as well, so that you will obtain a return receipt. Note: Never make an empty threat, as this can be illegal. If your Ultimatum Letter fails to result in payment, be sure to follow through on the action you promised in the letter. 2. Use a Professional Collection Agency Using the services of a professional collection agency is something you can do at any point. You may proceed with your own debt collection process first, or you may decide that your preference is to go the professional route from the start. Either way though, collection industry studies show that the sooner non-paying accounts are assigned to a professional agency, the better your chances of collecting payment. It is recommended that unpaid accounts be turned over to a collection agency within 90 days of their due date, whenever possible. As a benefit to our NSA Section members, the NNA has formed an alliance with Fidelity Information Corporation (FIC) to bring you professional collection services at exclusively low rates. It is often difficult to find a collection agency that will accept clients with few debts or with debts that are under $1,000 — but FIC accepts both. FIC has two different collection methods from which to choose. One is Flat Fee based (meaning you pay a small, set fee). This is an online system that allows you to make selections from a menu of fully automated services, including collection letters, phone calls, reporting to Credit Bureaus, address verification, and more. The second method is Contingency based (meaning you pay a percentage of the total amount collected). This option allows you to hand over the entire debt collection process to FIC's professionally trained collection personnel. If you do turn your delinquent account over for professional collection, you may want to send one more letter to the debtor. In this letter, you inform the client that the consequences of not paying their past due balance is that you have now hired a professional collection agency. This sometimes convinces debtors to pay immediately, to avoid dealing with the agency and any additional costs that may result. 3. Take Action in Small Claims Court The primary purpose of small claims court is to resolve small monetary disputes. The cases are usually presented directly by the parties involved, without the need for an attorney (although attorneys are allowed in some states, but are prohibited in others). The maximum amount of money a claim can be filed for varies considerably from state to state. Some states allow up to $15,000, whereas others may only allow a claim of up to $1,500 or $2,000. A great resource for more information on Small Claims court is Nolo Press, a provider of do-it-yourself legal solutions for consumers and small businesses. Check out their Web site at www.nolo.com. Additionally, the NNA offers members (at discounted prices) several self-help guidebooks that contain pertinent information. In particular, you may find the Legal Guide for Starting & Running a Small Business extremely useful here. Chapter 23 is entirely devoted to "Representing Yourself in Small Claims Court". Note that small claims court may not be an option if the delinquent client is based outside of your state, because your state guidelines may not be applicable there. While each state's small claims court proceedings vary to some degree, the following steps generally apply: i. Make a demand for payment from the debtor. Through your earlier collection efforts, you have probably already done this by sending out one or more collection letters via certified mail. These can be used as evidence in court. ii. Complete and file a small claim "complaint" or "statement of claim". Filing fees vary depending upon the venue. Check with your local small claims court for information on how and where your filing must be completed. You may be asked to attach a copy of your written agreement. iii. Notify the defendant of the lawsuit within a specified amount of time, in a course of action called a "service of process". In most states, the defendant (debtor) may be served by a law officer, a process server or via certified mail. Usually, a "proof of service" document must be returned to the court to prove that the defendant was notified. iv. Attend a hearing. Most hearings are scheduled within a month or two of the complaint filing. Be sure to have all relevant support documents with you, such as: agreement or contract, applicable Notary journal entries, invoice(s), letters or other written correspondence, notes taken during conversations with debtor, etc. If the client doesn't appear at the hearing, you may win by default. If the client does appear, you present your case to the judge. v. If you win a judgment against the debtor, you are entitled to receive payment. However, you should be aware that winning does not automatically guarantee that you'll be able to collect, because the court does not collect your judgment for you. Some clients may still refuse to pay, in which case you may have to hire someone to help you obtain the actual payment. 4. Hire an Attorney Hiring an attorney can be expensive, so cost may prohibit this as a viable option. However, you may be able to find an attorney willing to send a letter to your debtor for a nominal fee. This type of letter — with the attorney or law firm's letterhead — may just be persuasive enough to induce the client to pay you. 5. Write Off as Bad Debt Depending upon whether your method of reporting revenue is on a cash basis or accrual basis, this may or may not be an acceptable option. Cash-based accounting recognizes revenues when payments are actually received, so bad debt write-offs are not permitted. Accrual-based accounting recognizes revenues when they are earned (i.e., when the service is performed), so bad debt write-offs may apply. For more information on this, we suggest that you contact a certified public accountant or the IRS.
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