Protect Your Bottom Line:Effective Strategies for Getting Paid

Presented by:

Jocelyn Ruth Nager, EsquireJackelyn Florez, CLA

Frank Frank Goldstein & Nager, PC1430 Broadway Suite 1615New York, New York 10018

Tel 212-686-0100 Fax 212-686-6726www.ffgnesqs.com

A Certified Woman-owned Business

Collection TrendsSource: Commercial Collection Agency Association

94.9%89.9%

81.3%

69.6%

52.1%

39.1%

22.8%

9.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Due Date 30 Days 60 Days 90 Days SixMonths

NineMonths

One Year TwoYears

This chart illustrates the decrease in collectability over time. As time passes, the probability of collection decreases.

Impact of Bad Debt Write-off on Sales

Your Write off  

And Your Net Profit is      

  2% 3% 4% 5% 6%

You will need the following amount of additional sales to offset the loss

$5,000 $250,000 $166,666 $125,000 $100,000 $83,333

$10,000 $500,,000 $333,333 $250,000 $200,000 $166,666

$25,000 $1,250,000 $833,333 $625,000 $500,000 $416,666$50,000 $2,500,000 $1,666,666 $1,250,000 $1,000.000 $833,333

Interview Your Client

• Take time and get to know your client’s business

• Who buys your client’s services?

• Check references• Trade References• Bank References

• Know your client’s pay cycle

• Establish a rapport with the accounts payable person who will process your invoice

Client’s Credit File

• Signed written agreements with clear payment terms, conditions, indemnification, and credit and collection policies. Also, a copy of a credit application if you wish to use one. Credit applications should be renewed every 2-3 years• Updated Statement of Account – make sure it matches the name on the contract• Copies of all invoices that correspond to the statement of account (make sure the name on the invoices match the statement of account as well as the name of the company on the contract)• Copies of payments made by client (banking information/verification)

Client’s Credit File (continued)

• Copies of correspondence received from the client or to the customer. This should include disputes or incidents reported by the client as well as your response to them

• Copy of client’s business card

• Notes, news regarding new business locations or ventures— news items—negative or positive regarding your customer

• Copies of corporate records, business name filings, bankruptcy filings, court judgments and tax liens

Client’s Credit File (continued)

• Copy of personal guarantees, if any

• Tax ID numbers, Social Security numbers

• Trade References—verification and notes

• Credit Report

• List of authorized personnel

Personal Guarantee

• The personal guarantee will insure that if the corporation should go out of business you can pursue the individual for the corporate debt • The personal guarantee should be on a separate page from the contract or credit application• The individual should sign in a personal capacity not as a corporate officer. It is important that no title is listed for the individual. If the individual signs and indicates his title by his name, he is signing as a corporate officer and not individually. Have the client sign the guarantee again without the title. All documents should be dated• You must also obtain the individual’s social security number, addresses, and personal banking information

Handling Clients with Bad Credit or No Credit

• Don’t expect a business with a history of bouncing checks or paying their bills late to change when dealing with your company• If you must do business with the chronically late, lay down your credit rules early and firmly. Start the relationship slow • Keep the amount of services to a minimum until they have proven themselves • Do not do business without having signed contracts clearly stating and agreeing to the payment terms

Document Retention and Red Flags

• Copies of Checks – Look out for changes in the company name on the check. Is it different than the client name you have? If so, call the client and inquire why? This could be a red flag of financial difficulty. By keeping a copy of the payments, it provides banking information and also helps you spot trouble before it gets out of hand• Credit Application – make sure to verify the information given. Many times, certain information is falsified. (i.e. social security numbers, trade names, tax id numbers and corporation information

Document Retention and Red Flags (continued)

• Obtain a credit report on new clients prior to doing work. It shows historical payment data, bankruptcy records, lawsuits, liens and court judgments and a risk rating that predicts how like a client is to pay its bills. It also reveals relevant data including fictitious business name filings and tax liens• The idea is to get as much information about your client’s assets and business relationships upfront• Get a personal guarantee whenever possible—especially if the company is a startup

Strategies for CollectingYour Receivables

• A good client is a paying client. Anything else is a hallucination• Don’t be afraid• Act quickly—Call, call, call• The owner or financial person should call• By offering an extension or a payment plan, it maintains your good relationship and keeps your reputation intact• Payment delays can be avoided by developing a rapport with the client

When To Consider Additional Help

• You must get paid

• The invoice has aged 60 days

• Broken promises

• Partial payment

• No response

• Move forward, do not delay

Preventive Measures

• Obtain information

• Keep an updated credit file on all your clients

• Monitor accounts receivable carefully

• Establish a credit policy• Contact your client for non-payment

• Develop a relationship with someone in the accounts payable department

• Consider calling on days 20-28 before invoice is due to make sure all documentation received by Accounts Payable

Case Study #1

• Existing client has strict credit policies in place

• Requires fully completed credit application as well as a personal guarantee

• Pursues with suit quickly for full amount owed plus costs of collection/litigation, interest and attorney’s fees as specified clearly in their credit application

• Successfully collects its receivables. Very few go to litigation.

Case Study #2

• Existing Client maintains proper credit file with all documents substantiating any balances owed

• A claim was submitted for litigation

• Documentation provided to defendants and demand made for full amount or suit

• Claim was paid in full within 60 days

Collection Options

Collection Agency

Collection Law Firm (Legal Action)

Collection Process

Claim is forwarded to attorney for collection. Acknowledgment is sent to the client and demand in writing and by phone

Debtor will either make payment arrangements, dispute or ignore

Ask for disputes in writing

Collection Process (continued)

Debtor’s dispute is sent to the client with attorney’s recommendations

Suit or no suit—based on severity of the allegations Client’s decision to sue or write-off

If no dispute, recommendations made based on the collectability to sue or write-off

Legal Process

Suit is recommended if not disputed, costs (advanced only), fee contingent upon collection. If disputed, small non-contingent retainer plus costs and the balance of the contingency fee

Costs received – Summons and Complaint prepared and filed with Court

Defendant served with papers

If an answer is filed by the defendant, discovery period begins and we await trial date

Legal Process (continued)

If there is a counterclaim, then an hourly fee is charged to handle if client wishes to have representation

If no answer, petition submitted to Court for entry of default judgment

Judgment

Post Judgment Collections Property or income execution Bank subpoenas with restraining notices to freeze bank

accounts Sell commercial property Restrain monies due from third parties

Costs of Litigation

Out of pocket expenditures Filing Fees Service Fees Motion Fees Execution Fees Marshal Fees

Time

Expectations

Conclusions

Your receivables are the lifeblood of your business, protect them by taking these steps and following through with your credit and collection policies.

It is a smart business practice to maintain a credit file on your clients, monitor your accounts closely, and take necessary action when problems arise.

When you are unsure of what to do, seek professional help.