14 March 2022
/ Andrew C. Voorhees
How Accurate Information Upfront Can Help You Collect in the End: 5 Vital Pieces of Information
No one transacts business expecting to have to chase their customer for payment. Inevitably, you will have customers who stubbornly refuse to pay your receivables for many reasons. The good news is that obtaining and maintaining up-to-date and accurate information about your customer during the entirety of your business relationship can significantly assist with collection efforts if needed.
Here are five examples of information that, if accurate, can help you collect the balance due:
1. Contact Information:
It may seem that getting your customer’s proper address and phone number is a simple and routine matter. However, getting the correct information can reduce the time and cost to collect the debt. For example, if you are a goods supplier, it is important to know your customer's address v. the address where goods are delivered. Also, you will want to obtain the contact information for your customer’s accounts payable individual/department to more quickly address payment.
More importantly, a proper address is needed if you must eventually file a lawsuit. The Rules of Civil Procedure allow for several methods to perfect service of summons on a business and/or an individual. The Rules allow for service at the principal place of business, through an agent registered with the Secretary of State, and others. Ensuring a proper address can greatly reduce the amount of time to perfect service of summons to advance the court case more quickly. Additionally, if your agreement with your customer includes one or more personal guarantors, their accurate personal address information is needed to obtain service of summons as well.
Accurate contact information is also important when it comes to post-judgment executions. Should you obtain a judgment on the debt, the law allows for various mechanisms to collect on that judgment. For example, the law allows for judgment debtor exams and post-judgment depositions to determine your customer's assets and financial condition. If you do not have proper address information, you will not be able to effect proper service of the debtor exam request to summon the proper individual to the proceeding. Also, it is important to obtain a physical address rather than a P.O. Box. While a P.O. Box may be enough to obtain valid service of summons in a lawsuit, it is of little help when it comes to executing on your judgment. Having a physical address for your customer can assist in executions such as levies, where the court can take possession of business assets for auction and sale to satisfy your judgment.
More importantly, a proper address is needed if you must eventually file a lawsuit. The Rules of Civil Procedure allow for several methods to perfect service of summons on a business and/or an individual. The Rules allow for service at the principal place of business, through an agent registered with the Secretary of State, and others. Ensuring a proper address can greatly reduce the amount of time to perfect service of summons to advance the court case more quickly. Additionally, if your agreement with your customer includes one or more personal guarantors, their accurate personal address information is needed to obtain service of summons as well.
Accurate contact information is also important when it comes to post-judgment executions. Should you obtain a judgment on the debt, the law allows for various mechanisms to collect on that judgment. For example, the law allows for judgment debtor exams and post-judgment depositions to determine your customer's assets and financial condition. If you do not have proper address information, you will not be able to effect proper service of the debtor exam request to summon the proper individual to the proceeding. Also, it is important to obtain a physical address rather than a P.O. Box. While a P.O. Box may be enough to obtain valid service of summons in a lawsuit, it is of little help when it comes to executing on your judgment. Having a physical address for your customer can assist in executions such as levies, where the court can take possession of business assets for auction and sale to satisfy your judgment.
2. Corporate Information:
Obtaining proper corporate information at the beginning of your relationship with your customer is crucial. Whether you employ formal agreements, promissory notes, credit applications, or just invoice billing, you should obtain the full and complete corporate name of your customer, as well as the tax ID# and the registered agent with the secretary of state authorized to receive service of summons.
There are pitfalls to failing to obtain this information. For example, failing to file a lawsuit in the proper name of a corporation may leave you with an uncollectable judgment. If your customer uses your services under the name The Wayne Company, but the proper corporate name of your customer is Wayne Enterprises, Inc., your complaint must be in the proper corporate name. A judgment against The Wayne Company would be a judgment against a non-existent entity. It would not lead to execution against any assets owned in the name of Wayne Enterprises, Inc.
Furthermore, getting updated corporate information during the course of a business relationship is important to make sure you are still dealing with the original customer. For example, you may be a goods supplier with a customer with a long history of ordering goods on account. It is important to periodically confirm corporate names, ownership structure, and the names of those authorized to order goods on account. If the business has been sold or simply taken over by another entity, you want to ensure your claims are solidified against the entity actually ordering goods and services. Otherwise, you may be relying on an out-of-date credit application/agreement in the name of a defunct entity and an account being run up by a completely different corporation.
Also, it is equally important to determine that a business has no corporate status at all. For example, your customer does business as ABC Painting but a review of secretary of state records reveals no corporate entity registered with that name. In this case, it is highly likely that your customer is an unincorporated business with no separate legal existence. Therefore, the owner of the business and/or the signer of your agreement would be personally liable for the debt.
There are pitfalls to failing to obtain this information. For example, failing to file a lawsuit in the proper name of a corporation may leave you with an uncollectable judgment. If your customer uses your services under the name The Wayne Company, but the proper corporate name of your customer is Wayne Enterprises, Inc., your complaint must be in the proper corporate name. A judgment against The Wayne Company would be a judgment against a non-existent entity. It would not lead to execution against any assets owned in the name of Wayne Enterprises, Inc.
Furthermore, getting updated corporate information during the course of a business relationship is important to make sure you are still dealing with the original customer. For example, you may be a goods supplier with a customer with a long history of ordering goods on account. It is important to periodically confirm corporate names, ownership structure, and the names of those authorized to order goods on account. If the business has been sold or simply taken over by another entity, you want to ensure your claims are solidified against the entity actually ordering goods and services. Otherwise, you may be relying on an out-of-date credit application/agreement in the name of a defunct entity and an account being run up by a completely different corporation.
Also, it is equally important to determine that a business has no corporate status at all. For example, your customer does business as ABC Painting but a review of secretary of state records reveals no corporate entity registered with that name. In this case, it is highly likely that your customer is an unincorporated business with no separate legal existence. Therefore, the owner of the business and/or the signer of your agreement would be personally liable for the debt.
3. Payment Information:
Keeping formal payment records during the course of your relationship with the customer is very helpful in collecting on a delinquent debt. Not only is it important to keep a running account of all charges, payments, and credits to help prove a balance due, but the information included in the actual payments themselves can be an effective avenue of post-judgment collection.
In many jurisdictions around the country, the courts allow for bank attachments/garnishments, which would permit a judgment creditor to request the court order your customer’s bank to pay funds held on deposit into the court for eventual remittance to you in partial payment of your judgment. To employ this mechanism, you need to know where your customer does their banking. A good way to obtain this is to get it upfront through credit applications requesting information on banking references. Take note of how your customer makes payments. Keeping copies of checks will provide you all the banking information you need to proceed with a bank attachment should it be needed.
Keeping payment records regarding any non-sufficient funds (NSF) payments is also very important. Typically, your bank will notify you of any NSF checks or automated clearing house (ACH) transactions. Here, it is important to keep these notices from your bank to maximize your eventual recovery on these dishonored items. In some jurisdictions, the courts allow for enhanced penalties for passing bad checks, which may also include the recovery of costs and attorney fees. This is true not only to your business customer, but may also include the signer of the NSF check or the individual who authorized the ACH transaction.
In many jurisdictions around the country, the courts allow for bank attachments/garnishments, which would permit a judgment creditor to request the court order your customer’s bank to pay funds held on deposit into the court for eventual remittance to you in partial payment of your judgment. To employ this mechanism, you need to know where your customer does their banking. A good way to obtain this is to get it upfront through credit applications requesting information on banking references. Take note of how your customer makes payments. Keeping copies of checks will provide you all the banking information you need to proceed with a bank attachment should it be needed.
Keeping payment records regarding any non-sufficient funds (NSF) payments is also very important. Typically, your bank will notify you of any NSF checks or automated clearing house (ACH) transactions. Here, it is important to keep these notices from your bank to maximize your eventual recovery on these dishonored items. In some jurisdictions, the courts allow for enhanced penalties for passing bad checks, which may also include the recovery of costs and attorney fees. This is true not only to your business customer, but may also include the signer of the NSF check or the individual who authorized the ACH transaction.
4. Security Information:
Depending on the type of transaction, your customer may be granting you security in certain collateral. This may be a security interest in business assets or a mortgage on real property. Again, it is important to obtain accurate information and maintain accurate records to ensure your security interest is perfected.
When it comes to security interests in assets, you need to file an accurate financing statement with the secretary of state. The information on your financing statement needs to be as accurate as possible. While many financing statements contain a description asserting an interest in all business assets, a financing statement on a certain piece of collateral should include as much detailed information as possible to identify the item subject to your interest properly. This is also true of a mortgage on real property. You must identify the property under the law for your mortgage to be effective.
Do not forget to file with the appropriate agency once you have the proper financing statement/mortgage information. Your claim is not perfected until it is filed under the secretary of state for financing statements and county recorder for mortgage claims. There have been horror stories of other creditors gaining priority of business assets because the security instrument was sitting on a desk or buried in a file and never submitted to the proper agency.
5. Agreements:
While this may be intuitive, it is essential to maintain your original agreement with your customer. In many instances, this is your best evidence that a debt is due.
What if you no longer possess the original agreement? While it is possible to proceed with a collection lawsuit with only a copy of the agreement, it must be a clear copy that is a true and accurate copy of the original. If your customer raises an issue with the agreement in court, it is much more difficult to proceed with an unclear copy of an agreement. Agreement copies that are overly copied, smudged in fax transmission, too-small type, illegible signatures, or copied with post-it notes or other debris on the original, can affect your ability to obtain a judgment on your claim.
What if you no longer possess the original agreement? While it is possible to proceed with a collection lawsuit with only a copy of the agreement, it must be a clear copy that is a true and accurate copy of the original. If your customer raises an issue with the agreement in court, it is much more difficult to proceed with an unclear copy of an agreement. Agreement copies that are overly copied, smudged in fax transmission, too-small type, illegible signatures, or copied with post-it notes or other debris on the original, can affect your ability to obtain a judgment on your claim.
While this is not an exhaustive list of why obtaining and keeping accurate information and records is important to your collection prospects, the significance is clear. If you have additional questions on this topic, and you are interested in protecting your security interest, connect shareholder Andy Voorhees at any time.
This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
