I have a deadbeat client who is several months behind in making payments on her account. She did make one payment last month, but I have a feeling it's the last I'll see for sometime.

I continue to send her statements every month, but I've never charged her interest. Mind you, this is a very small company (me) who doesn't do a lot of outside business. Most of my clients are friends or close acquaintences who would never dream of stiffing me, so I've never even considered charging interest on an unpaid balance!

Can I legally charge her interest, and if so, can I start doing it without specific notice on the next statement I send her (1st of April)? What kind of interest would be considered exorbitant and uncollectable (because of the relationship, I'd like to charge her the max I can get away with...she is a real piece of work).

This woman is behind my reasoning to get out of the contracting business, at least with online clients. She's been impossible to work with, and the resistance to pay is the last straw.

Lynn

Does the contract you already have with her specify late fees or interest on late payments? If not, your only recourse may be to stick a note in the next notice informing her that you'll be sending this to a collection agency if you don't receive payment by date "x".

But this is not qualified legal advice!!! Check it out first!!

mj

MJ's position is exactly the one I would have taken.

A thought: some states allow you to refer the matter to a collection agency and add those fees to the amount due. It's a very regulated activity so do consult with a good attorney (not an accountant!) first.

Or, take a tip from Leslie's husband (http://www.eaforums.com/showthread.php?threadid=10550) and buy your DH a case of beer and a package of Oscar Meyer All-Beef Franks and send him out to put on the pressure. :D

Deb
who thinks this is one of the funniest business stories she's heard yet

:(

Well, if you can legally charge her interest or not....I doubt you'll ever see it. I'm sorry to say that there are deadbeats and bad debt in the business world. :(

We "charge" interest 1 1/2 percent per month, over 30 days. It's in our terms, it is on our statements and we never, ever, ever collect it. It seems to be an unwritten rule in the business world (as opposed to the consumer world) that interest is a joke. I remember a few years back, the office manager came running up to me waiving a check....you're not going to believe it, somebody paid the interest! :faint:

The hard truth is, when someone refuses to pay a business debt, there is very little recourse.

You can turn them over to a collection agency. (The collection agency doesn't have much more power than you do, but they'll be persistent for a bit.) I can't remember, off the top of my head I think they take a third. Whether or not a collection agency would take you as a client, with just one deadbeat, I can't say.

You can sue. In order to sue for a business debt, you really do need a lawyer, I'm afraid. (Yes, you can take her to small claims court without one, but if she's an internet client, I'd not have the foggiest idea where the suing should take place.) I've never sued anyone in 15 years...I press to get a debt collected as long as I can, and then just write the debt off. :( Fortunately, it doesn't happen to me too much, since I'm still able to pay salaries. Typically, I write off about 25,000 a year in bad debt...not including the year a particularly large hospital system went bankrupt and took me for 30K.

The only "credit" agency to report to is Dun & Bradstreet...minimal effect as a threat, but you can give it a try (threatening that is). I think you have to be a member of Dun & Bradstreet to report, but I could be mistaken. A bad report on D & B isn't like a bad report on a consumer credit report...they are often shrugged off.

I'm not being very helpful here. Talk big with her, I guess, but steel yourself..... :(

Andrea

duckie brings up a good point. We always pay on time, but our managers will sometimes hold a bill and not send it to Accounting for payment. A second bill or statement comes in with interest comes in, and Accounting always pays the original invoice amount.

Thanks for all the advice folks.

1. I have a legal plan through work, so the lawyer (or legal advice) is not an issue. Guess I should just call them, huh?

2. I love Leslie's hubby's approach...in fact, I double checked to see what state she was in...thinking maybe I could send him over to visit my lovely client :D Too bad, this woman is in Arkansas. Maybe I could send Clinton :laugh:

3. I already threatened the collection agency *in writing*. Get this. This chick says (to the effect of) "When I get a call from collection agencies, I just pay the person who I owe the money to, not the collection agency." Do ya think she's got some problems, in that she ALREADY KNOWS how she'd deal with a collection agency???????? (Geez, I'd be shrinking in the bushes if anyone even mentioned the word "collection agency" around me!)

4. I need to pick my clients better :shake:

But this is not qualified legal advice!!! Check it out first!! mj, did you go to pre-law school? :laugh: I went for my paralegal degree and this was drilled into our heads every fricking day . Just curious :D

Lynn
who will call the legal assistance program on Monday

Wanna hear a deadbeat story that will cheer you up? (I mean, because it isn't you.)

So, I launch a new product line a little over a year ago, go to a completely new (and not well defined) market "general" business. :rolleyes: In anticipation of dealing with some smaller businesses, my front line folks put some stronger credit policies in place. (The overwhelming bulk of our business is with people who aren't credit risks like the government and such.)

However, we were so hungry to rack up the sales, we, uh, let one slip by.

Names have been changed to protect the guilty.

Fred Spongebob of Spongebob & Company in NYC places an order for 10 Swiss Army watches, no imprint, $150 each. Over-eager sales rep who has been given the mission of growing this part of the business, neglects to run him through credit and places the order with the factory to ship directly to Fred.

I'm trolling through the computer, looking to see what kind of sales the new line is bringing in, and I see the order. My warning bells and lights and whistles go off -- any name contact that is the same as the business name, especially with and & company.... huge flag. I chose to assume the new credit policies had been followed, but, in my heart I knew better. I wanted the sale, too.

3 days later, I'm sitting in my customer service manager's office when he has to take an overflow phone call. Why, it's Fred Spongebob! He wants to order more watches! This time he wants 15! I give the manager the high sign, he puts the customer on hold, and I'm like, cash on the barrel head, you know?

That order goes on credit hold, pending credit card payment....

Betcha think the end of this story is that we were left holding the bag for $1500, right?

:laugh:

Nope.

See, Swiss Army had sent the order directly to us by mistake, and we'd reshipped it to the customer.

Kind of.

Acutally, Swiss Army double shipped the order, once to the customer and once to us. We then sent the second shipment to the customer! The guy got $3000 worth of watches from us..and we got not one dime.

Wonder where the stuff on eBay comes from?

:D

Andrea
who has to keep a sense of humor, you know?

Originally posted by lynnzop
mj, did you go to pre-law school? :laugh: I went for my paralegal degree and this was drilled into our heads every fricking day . Just curious :D



Nope. Just know that while I had an idea of what you MIGHT be able to do, I didn't want you to do it and get po'ed at me if it wasn't feasible! That and I've been reading up on landlord/tenant law lately in the ongoing battle regarding a $1300 security deposit... so I've got Legalese on the brain right now :laugh:

mj

Wow, that's a bummer.

I've had a few deadbeats, too.

When I took over my friend's business (the monthly parenting newsmagazine) I took her word as to who was responsible and who wasn't.

One of my biggest advertisers was a gymnastics center. "She's a little slow paying," my friend told me, "but she always pays."

After one month where she took out two large ads (September--start of school) I saw that she had closed her business and disappeared off the face of the earth. Another gymnastics center which had had the misfortune of being located in an un-air conditioned building, moved into her premises.

I thought about pursuing her but decided against it. I didn't have a signed contract, because she had advertised from the time the newspaper opened and just kept advertising, and she had always paid her bills.

I have some of the faxed copy she sent, but many times we just ran the ad she used every month. I won't be so foolish again.

Maryanne -

Sigh. Yep. Sorry that happened to you. Sigh.

The sad fact of business is that bad debt is part of it. Budgeting for it helps ease the blow. I don't get nearly as personally upset about every bad debt as I used to, now that there is X in the budget that comes out every single month to account for bad debt. Cost of doing business.

Straying from Lynn's original question:

Policies and common sense can help a business cut bad or difficult to collect debt. One of the things that drives me bananas is not just the accounts that go bad, but the accounts that cost so much money to collect from.

If I send somebody an invoice and they pay it, "collecting" has cost me a stamp. Once we have to start calling....it could end up costing me a hundred dollars just to collect a bill. Because we do a lot of business with institutions, calling is often the cost of doing business, but we've learned tricks along the way to make things more efficient.

Read purchase orders.

I know, you're saying Duh, but that's not as easy as it sounds when a rep is working through a stack of customer orders. The rep needs to read the issued purchase order carefully and make sure it is right....and to set things up in our computer system so that the invoice will match the purchase order.

The federal government, which used to be a horrible pay, is now an excellent pay - as long as the invoice matches the purchase order exactly. If it doesn't match exactly, the invoice is thrown into Red Tape Hell, and you are lucky if you can ever get it out. I've seen $20,000 payments held up for months over a $1.50 that didn't match up. :eek: Use common sense (I hammer my people), we don't really need the $1.50 that badly...just adjust the invoice before it goes out so we don't get hung up.

Waive charges for quick payment.

We don't encourage customers to send checks in with their orders for a variety of reasons (not the least is the checks are never right)...but when they do, use common sense.

Customer sent an institutional check in for a small order the other day and didn't include freight. My rep had gone to lengths to make arrangements to invoice her for the additional freight. I caught the order in the computer and said.... Don't!. The order was a hundred dollars, we had the check in our hands. The freight would have been at most 7 dollars. Lordie, invoicing and collecting 7 dollars costs me way more than 7 dollars :eek: . Don't borrow trouble!

Take the money and run!!! :D

Andrea

I deal with deadbeats every day, yet I don't sell a thing.

I'm your friendly neighborhood insurance adjustor. When we find someone at fault, we go after them for reimbursement of damages (it's called subrogation -- there's a $0.25 word!).

Most responsible people carry insurance to cover this, so it's just a matter of dealing with the other insurance company, showing them how we arrived at our theory of liability (i.e. an insured's roofer installed the roof wrong and it leaked like a flushing toilet in the next rainstorm), etc. The other insurance company agrees and issues reimbursement. We issue the insured back their deductible and the only cost of the entire matter is the expense of handling the claim.

But, there are many, many people out there who do not carry insurance (or who flat-out refuse to turn in a claim to their insurance company).

When I handle subrogation files, I write to the adverse party and explain my theory of liability, send them copies of estimates, checks, etc. that were written, and tell them that if they have insurance they need to contact me ASAP and if they don't, they need to contact me ASAP to make payment arrangements.

When thirty days have passed, I write them a second letter stating that I have had no response, and that if I don't hear from them within the next thirty days, that the matter will be turned over to our attorney for legal action.

This second letter usually elicits a response from about a third of the deadbeats. They don't mind that you hand a matter over to a collection agency. They don't like that you're handing the matter over to an attorney.

Almost all of those people who call say that they will be willing to set up payment arrangements. I make them sign a Promissory Note that not only stipulates the payment schedule (interest free) but also indicates that if they fail to make their payments for two consecutive months, the entire debt is due immediately with interest, and the matter will be set up for legal action.

About half of those who are mailed Promissory Notes sign them. About 2/3 of them pay on schedule.

The others (including those who simply won't ever respond) are taken to court. About 75% of them actually show up. The 25% that don't get summary judgements in our favor. We win almost every single time when we go to court.

Once you have a judgement against someone, it doesn't guarantee money. A judgement is just more evidence of debt. It does, however, give us very nice ammunition to get our money back.

We then have the power to garnish bank accounts or to garnish wages from paychecks. We then have the power to put leins on homes. We can even put a lein on someone's driver's license if the damages arose from an automobile accident.

I'll pursue the matter in court for anything over $500.00.

You may sit there and ask yourself why on earth would you get a judgement against someone who doesn't have the money to pay you back. The answer is, you never know what interesting roads will turn to force someone to pay you back.

1. I've collected from a deadbeat who won the lottery. We garnished our money in less than a week after he was issued that lottery check.

2. I've collected from business owners who claimed they didn't have a dime of their own. It's amazing how just around Christmas time, their bank accounts are usually flush with money (Valentine's Day if they're in the jewelry business). Christmas time is a favorite time for me to direct our attorneys to garnish bank accounts.

3. I had a guy who wanted to be a truck driver. He needed to go to trucking school. He went through the whole program, but was refused his CDL (commercial driver's license) because of a debt against him four years prior. It was amazing how this guy with allegedly no money whatsoever managed to cough up nearly $25,000 so that I would release the lein on his driver's license.

The trick is, you need to be tenacious and be creative. Sure, you'll never get everyone to pay, but you'll get most of them to pay.

Jeff

I don't get nearly as personally upset about every bad debt as I used to, now that there is X in the budget that comes out every single month to account for bad debt. Cost of doing business.

A goodly amount of time during my accounting II class was devoted to learning exactly how to do this.

Point being that it is very common. Sad, but common.

Lynne