While no business can benefit from late payments, a delay in incoming revenue can be disastrous for small or medium sized companies. With many SMEs relying on continuous cashflow, unpaid debts can affect the operation of the business as a whole.
As many SMEs don’t have the capacity to employ in-house debt recovery experts, they can find it difficult to resolve the issue of late payments. As a result, their business can face financing problems and may even be forced to suspend or cease trading.
Getting Expert Help
Fortunately, there is help available for SMEs. Rather than attempting to process debt collection in-house, they can access professional assistance by outsourcing.
With various dispute resolution options available to SMEs, professional debt experts can ensure that businesses are able to recover their debts swiftly. Whether a letter before action is required or a winding up petition needs to be issued, using an experienced debt recovery firm can ensure that the matter is handled appropriately and effectively.
Minimising Downtime
If on-going late payments are impeding your cashflow and resulting in operational delays, it’s essential to obtain payment quickly. By referring the matter to debt recovery solicitors, you may find that the debtor responds more quickly to your demands.
A solicitor’s letter, for example, can be far more effective at motivating a debtor to pay their outstanding bills, than a standard business letter or invoice reminder.
Reducing Costs
Unfortunately, SMEs without experience in debt recovery may think taking a client to court is the only option to recover their funds. However, this can be an expensive and acrimonious process.
Experienced debt collection professionals will identify alternative solutions which can help you to avoid commercial litigation. Rather than engaging in a costly and time-consuming court battle, you can use debt recovery services to resolve the problem far more quickly and with less impact on your business functions.
Building an in-house debt recovery team can be a costly and unnecessary process for many businesses. Rather than add to operational costs, why not employ the services of experienced UK and international debt recovery solicitors as and when you need them? This can reduce costs and resolve the issue of late payments, while enabling your business to run efficiently and profitably.
How can I claim late payment interest, compensation and costs? Get Lovetts 10 free tips for effective debt collection here and drastically improve your credit control procedures.
Commercial disputes can prove costly for all types of businesses. Whether you operate as a sole trader, an SME or as a multinational corporation, resolving disputes quickly is key to maintaining good cashflow and the ongoing success of the business. Whilst disputes can arise over any type of business transaction, issues relating to goods or services supplied commonly arise when you start chasing your client or customer for outstanding payments.
In such cases, it’s essential that the dispute is resolved quickly. If payment remains outstanding over a significant period of time or the dispute escalates and creates bad blood between you and your customer, your business could suffer catastrophic harm. SMEs, in particular, can struggle to operate if regular late payments occur or if incoming funds aren’t received on time.
Is court really the right option?
Going to court may seem like an ideal solution if a client has failed to pay a bill or broken the terms of the contract. However, taking a case to court can be costly and time-consuming. In addition to paying court fees, it’s likely that you’ll need to pay expensive bills for legal representation. In some cases, the cost of going to court may be higher than the money you’re hoping to recover and it could take up to 2 years to get to trial in some cases.
Alternative Dispute Resolution for businesses
Fortunately, going to court isn’t the only way to resolve a commercial disagreement. Alternative dispute resolution (ADR) provides a range of methods when it comes to commercial litigation and debt recovery.
Negotiation, mediation and conciliation allow the parties to come together and find a solution to the issue, often with the use of an impartial person to manage the meetings. Mediation has a high success rate. A skilled mediator can often help the parties find a solution even when the parties themselves initially felt there was no chance. However, if this doesn’t seem like a viable way to resolve potentially acrimonious disputes, the options of arbitration or adjudication could provide an ideal way for the issue to be dealt with swiftly if the terms of your contract allow such options.
How can I claim late payment interest, compensation and costs?
With court being seen as a last resort, ADR provides a cost-effective way for businesses to resolve disputes. As less contentious forms of dispute resolution, negotiation, mediation or conciliation may even enable you to foster an on-going business relationship with the client.
If you need help enforcing late payment law or you require help with UK and international debt recovery, don’t head straight for the court system. Using ADR could help you to resolve your disputes efficiently and effectively, whilst reducing your business costs.
10 Tips for Effective Debt Collection:
A Free Guide
Recruitment agencies can suffer from the actions of those clients who try to avoid paying their invoices on-time or at all. Here are four factors you may experience.
1. Weekly timesheets
Temporary or contract workers who are assigned to jobs by your agency are required to submit timesheets showing the number of hours worked so that you can calculate the pay they are owed each week. But a number of problems can arise with timesheets:
- The employer’s representative may not sign the timesheet → if you receive an unsigned timesheet take additional steps to validate the hours by emailing the customer
- The number of hours claimed may be incorrect → ensure your Terms & Conditions (T&C’s) make it clear that hours recorded on the timesheet will be deemed correct
- The performance of the worker may be deemed to be unacceptable → ensure your T&C’s make it clear that you are acting as an agent, offer no guarantees as to the performance of the worker and set out the procedure for your customer if they are dissatisfied with the work.
In all of these circumstances the employer may try to get out of paying the agency. Get Lovetts 10 free tips for effective debt collection here and drastically improve your credit control procedures.
2. Dispute over the job role
In some cases, an employer may take on a worker for a permanent role for which they were originally not put forward. This can mean that the hourly rate due to the employee may be higher than that paid for the original role.
In effect, the employer is getting a more expensive contractor than they paid for. Although the employee won’t be out of pocket, your agency could be → ensure remuneration is clearly defined in the T&C’s for the purposes of calculating the introduction fee.
3. Dispute over payment for a temp to permanent appointment
There may be occasions when you supply a temporary or contract worker to a company for a set period. On conclusion of that period the employer decides to make that person a permanent employee. In these circumstances it is usual for the employer to pay the agency a finder’s fee and this should be included in the original contractual agreement → ensure the T&C’s set out the Transfer Fees payable when a candidate goes from temporary to permanent and define the qualifying period for payment of a fee when a temporary worker is supplied.
However, some unscrupulous employers may seek to take on temporary staff permanently without telling the agency, thus avoiding the fee.
4. Disputes concerning the original finder of an employee
Sometimes disputes arise because the employer has found the successful applicant via more than one channel. In these circumstances, the employer may refuse to pay the agency a finder’s fee and will say that they found the staff member through an alternative source → ensure the date on which a candidate is first introduced to the customer is documented in case a dispute arises.
5. How a professional debt recovery firm can help
If your recruitment agency has suffered from any of the above situations and you’ve been unable to recover the money you are due, you should speak to a solicitor who specialises in debt recovery without delay. Through a process of letters and telephone calls, an experienced solicitor uses contractual law to ensure that you receive the money you are owed in full.
Collecting payment from clients can become problematic, even for the most financially wise companies. A client could simply refuse to pay, or they might take an unfair advantage of the friendly relationship you have built with them. Either way, it can be difficult to force the payment with a fear of ruining your relationship or losing their custom. However, outsourcing your debt recovery can be a solution. Here are our top three reasons why you should seek assistance and top advice from debt recovery solicitors’ specialists.
1. Time is of the essence
When a payment becomes overdue, it’s important that you act quickly to collect. The longer it takes for a debt to be recovered, the more difficult the process of recovering becomes. However, in the world of business that time moves fast, and sometimes we feel like there aren’t enough hours in the day to deal with everything. Your time is better spent on providing a brilliant service to your customers, so leave the payment chasing to a debt collection specialist.
2. Cost-effective
Outsourcing your debt recovery can help reduce your costs as you will stop spending money on overheads such as employing extra staff to chase payment. When you use debt collection solicitors, there is a higher success rate of recovering money. Customers are more likely to pay if they receive a letter from a solicitor. This is often because they know that the threat of legal proceedings is serious enough to provide sufficient motivation to ensure the debtor makes payment of your debt a top priority. Get Lovetts 10 free tips for effective debt collection here and drastically improve your credit control procedures.
3. Expertise
Debt collection solicitors have the necessary skills and expertise required to maximise the collection of outstanding debts. When you outsource your debt recovery needs, you will be offered a tailored service specific to you and your business’ needs. You will also be receiving a service from people who have vast experience in the field, so you can feel confident in their ability.
Seeking the assistance of a debt recovery specialist is efficient, stress-free, cost-effective and beneficial rather than trying to pursue debtors yourself.
Get your demo login and check out how CaseManager gives you complete control over your cases – 24/7
• Issue instructions at every stage of a case
• Instruct on payments, credits and write-offs
• Receive prompts when your input is required
• Discuss cases via internal messaging system
• Comprehensive reporting
• Download case documents (letters, email, etc)
Usually when a company owes a debt, their creditor can file court proceedings against them in the hope that they will pay – and use a method of enforcement to recover the money if not. However some circumstances, such as a debtor refusing to engage, make this method of debt recovery an unsuitable option. This is where strong action is needed: A Draft Winding Up Petition (WUP).
What is the difference between a Winding Up Petition and a Draft?
A Winding Up Petition is a petition sent to Court to wind up a company that cannot pay an undisputed debt. A company who cannot pay a debt on demand is deemed insolvent, and this petition starts the process of liquidating them. If a company refuses to engage with their creditor about any outstanding amounts, threatening liquidation is a good weapon for debt collection.
The creditor can ask a solicitor to create a WUP, but hold off on serving it formally. It will be sent only to the debtor with an accompanying letter warning them that if they do not settle the debt within a set time period (usually seven days) then the petition will be submitted at Court. This is known as a Draft-Winding Up Petition. The debtor will be motivated to avoid Court and liquidation, and Lovetts have found that 81% of Draft-Winding Up Petitions result in full payment of the debt.
How can I claim late payment interest, compensation and costs?
What happens when a Winding Up Petition is formally served?
If a Draft-WUP did not achieve the desired effect, the next step is to go to Court. This is the process followed in that situation:
1. The petition is presented (i.e. sent to Court for a hearing date to be given)
2. The petition is served on the company’s registered office
3. After at least 7 days has passed (but at least 7 days before the hearing is due), the Winding Up is advertised in the London Gazette.
4. Once the Winding Up has been advertised, the debtor’s bank will freeze all company accounts. This effectively prevents them from continuing to trade.
5. At the hearing, the Judge will hear the petition and make a Winding Up Order against the debtor unless they provide a defence or prove they can pay the debt.
6. Once the Order has been made, the official receiver will start the process of liquidating the company and distributing the assets to the creditors.
7. The directors of the company being wound up will be investigated for any wrongful trading. If they are found to have been accepting credit with no expectation of being able to pay it back, they may be found personally liable for certain debts.
When a company goes into liquidation, there is an order of priority when it comes to the distribution of assets.
There are certain criteria to meet before sending the Petition:
– The debt must be a at least £750. Usually this debt recovery option is used when the debt is much larger than this due to the legal fees involved.
– The debt must be undisputed. If the debt is disputed, this may result in an injunction against the petitioner, the petition being thrown out of Court and the creditor being ordered to pay the other side’s legal costs.
– The debtor must be a company, not an individual. The bankruptcy procedure is slightly different for an individual.
At Lovetts we have found the Draft-WUP is much more effective than a Statutory Demand, resulting in payment 81% of the time. Not only does it come with the threat of being liquidated, it also provides only 7 days to take action whereas the Stat Demand gives the debtor a full 21 days to continue delaying payment.
Is chasing late payments getting in the way of your other business priorities? Our handy free guide will provide you with 10 tips and insights to help you reduce those issues. DOWNLOAD FREE
In 2016, the UAE oil crisis led to job cuts and a slump in the tourism industry. Significantly, the Persian Gulf nation has seen its consumer bad debts rise, a situation that has fueled the recent increased scrutiny on debt recovery agencies. To mitigate the financial crisis, the UAE credit bureau instituted new credit policies to limit delinquencies in the small and medium enterprise sectors. In this guide, we will address the intricacies of debt collection in the United Arab Emirates.
General Information
Although payment terms in the UAE are typically 30 days, 60-day payment terms are not uncommon. Larger entities such as major oil and gas companies usually have shorter DSOs (Days Sales Outstanding) than smaller to mid-sized companies. In 2015, the average DSO for small and mid-sized companies was 91 and 93 days respectively, while the average DSO for large and mega-sized companies was 80 and 62 days respectively.
Until 2016, debt collection specialists in the UAE had few options for dealing with defaults. However, the UAE debuted its first comprehensive bankruptcy legislation on 29 September 2016, replacing the older Commercial Transactions Law (UAE Federal Law No. 18 of 1993). The new law repeals Chapter V of the 1993 Commercial Code, which encapsulated the rules that govern the current insolvency system. Some important provisions include:
- the appointment of a new debt restructuring committee known as the Committee of Financial Restructuring.
Among other duties, the committee is responsible for supervising the financial restructuring process outside the judicial scope, appointing financial restructuring experts, maintaining an electronic record of individuals who have been issued bankruptcy rulings, sponsoring initiatives that raise public awareness about the law’s objectives, producing periodical reports about the law’s achievements, and proposing amendments to the law.
- the establishment of a new minimum threshold (AED 100,000) for creditor-initiated bankruptcy proceedings. The old law allowed creditors to apply for insolvency proceedings against debtors regardless of debt amounts.
- the rescinding of provisions in the 1993 Commercial Code that criminalized debtor defaults. In recent years, debt-ridden proprietors of small to mid-sized businesses have chosen to flee the country rather than to endure jail time for their defaults. In some cases, foreign owners of these businesses are still liable for their debts in the country of their origin. For example, Indian debtors who flee the UAE can be arrested in another country that has extradition treaties with the Persian Gulf nation.
- the establishment of three procedures for a struggling business: protective composition (a debtor-led court process that allows debtors to apply for a protective arrangement to avoid bankruptcy), insolvency with restructuring (applied to when a company can be salvaged), and insolvency with liquidation (applied to when a company is beyond salvage or a debtor fails to make a good-faith effort to fulfill financial obligations). It should be noted that a protective composition must be agreed upon by two-thirds of the creditors and that 50% of the debt must be repaid within three years.
The Benefits of Having An Experienced International Debt Collector
Ensure the debt collectors you use have extensive experience of international debt collection. For example Lovetts has trusted agents abroad, so they can contract debtors, such as those in the UAE, in their own language.
Collection Practices and Court Proceedings
The legal system in the UAE is based on Shariah and civil law. However, the majority of commercial cases are adjudicated in civil law courts. Additionally, the UAE also has civil law courts with jurisdiction in established Free Zones. At present, there are no less than 45 Free Zones in the country. Free Zones such as the Dubai International Financial Center are empowered to create unique legal frameworks for civil and commercial matters. To date, creditors in the UAE have recourse to:
- amicable negotiations before a Reconciliation and Settlement Committee, a process which begins with a demand letter recalling the debtor to his financial obligations.
- ordinary court proceedings, which requires debtors to meet their obligations within 15 days of being issued a summons, provided that they have not raised a defense against the proceedings. It must be noted, however, that injunctive relief and attachment orders are extremely difficult to obtain against UAE nationals. Creditors must prove beyond a reasonable doubt that there is substantial risk for dissolution of assets on the debtor’s part before judges will consider granting attachment orders or injunctive relief. Additionally, all court proceedings are in Arabic, which reinforces the necessity of relying on local UAE solicitor agents.
- Arbitration through Alternative Dispute Resolutions, which may prove risky for creditors, as monetary awards cannot be legally enforced.
- Foreign judgments, which will only be applied if they correspond to UAE domestic judgments. These corresponding judgments are usually based upon precepts dictated by bilateral enforcement treaties.
Insolvency Proceedings
In the UAE, insolvency or debt recovery proceedings begin in the Court of First Instance. After the court issues a judgment, the parties have the right to appeal to the Court of Appeals within 30 days. In the Court of Appeals, the parties are allowed to introduce additional witnesses and evidence to bolster their arguments. The judgment of the Court of Appeals stands unless the parties further appeal to the Court of Cassation within 30 days. Any judgment by the Court of Cassation is final, so creditors should carefully assess the ability of debtors to meet their financial obligations before they proceed with costly litigation.
It should also be noted that all creditors must submit their claims to the liquidator within 10 days of any published bankruptcy ruling. The liquidator will then rank creditors according to their claims and distribute awards accordingly.
As a credit controller in your company, you probably have more than enough tales to tell about debt recovery. Even so, you may finally run into situations that you haven’t before. If you’re still fairly new to your job, one scenario you may encounter involves a customer giving an excuse for not paying their invoice on time.
One common thing said is that the customer never received your invoice after you sent it out on paper or in e-invoice form. While it’s true things could occur where an invoice goes missing, some customers might use this as a way to avoid paying a bill on your due date.
Obviously, this is going to involve some time to contact these late-paying customers, and it may have to involve lengthy phone calls. It’s worth the effort, though, because you have a way to determine whether there’s truth involved or not.
As part of your credit control process, you should create a questionnaire that pins down what might have caused the customer to not pay. You can do this with eight key questions scoping out the truth. With these questions, you’ll have proof on record if the customer says they didn’t receive an invoice again.
1. Where Should Invoices Normally Be Posted?
If the customer thinks you lost the invoice, you need to ask them which address you should send your invoices to on a regular basis. Maybe they have another address they prefer if they don’t check their previous mail box often.
Or, if you send e-invoices, ask them which email address you need to send to.
By asking this question, you’ll know you sent your invoice to the right place rather than having the tables turned.
2. Have You Changed Addresses Recently?
Obviously, you can’t read the minds of your customers, so they need to update their address if they recently moved. Ask them when they moved and what their new address is. Be sure to remind them that they need to contact you if they move again so there isn’t any future misunderstanding.
3. Who Should You Send the Invoice To?
Invoices and paperwork can get lost within a company. Having the name of the person in accounts payable ensures your invoices gets to the member of staff able to authorise payment straight away.
4. Is There Any Other Issue?
The customer may tell you they don’t have a copy of your invoice and that they couldn’t pay it until they receive one. You’ll want to ask them if this was the only reason they haven’t paid right away. If they say yes, then it’s time to send them a copy immediately with a promise from them they’ll pay.
Asking this question gives you a good way to receive your money once you send them a new copy of the invoice. It makes it tougher for them to come up with other excuses for not making a timely payment.
5. Can You Pay The Invoice Immediately After Receiving It?
As a connector to the above question, you need to ask the customer whether they can pay the bill as soon as you send them a new copy. By holding them to this promise, you’ll place it on record that they committed to pay once they received the new copy you send them.
Should they not pay at this time, you’ll have enough records to show you’re in the right to add a late charge for deliberately not paying on time.
6. Should I Email Or Fax The Invoice?
The faster you can get the invoice to the customer, the better. Sending these in real-time doesn’t provide any excuses for the customer not addressing the invoice. It’s why you should ask the customer if you can email or fax the invoice to them.
Going this route rather than regular mail doesn’t allow time to pass and create excuses to forget.
If you think a customer is likely to use this excuse, be proactive and call the customer a week or two before it becomes due and ask whether they have received the invoice and whether it is on the payment run. This will keep you one step ahead of late payments.
10 Tips for Effective Debt Collection:
A Free Guide
The Challenge
Simple disputes relating to a debt can quickly escalate to bigger problems and damaged relationships. In a recent case, our client had a long standing dispute in respect of goods it had received from the other side. Due to the considerable number of orders and deliveries, the client required a paper trail from the other side to reconcile its ledger. Due to personnel changes on both sides, it was proving quite difficult for the ledger to be reconciled. Offers had been made by both parties; however, the parties reached a stalemate and relations had become fraught. Our client instructed Lovetts believing that they were destined to end up in Court over this dispute.
The Solution
Lovetts were able to utilise their extensive experience of dispute resolution and worked with both parties to facilitate the reconciliation of the respective ledgers. Accordingly, both parties were able to reach a settlement shortly after Lovetts were instructed. Lovetts effectively acted as a mediator between the parties and was able to resolve the dispute swiftly.
The Benefit
Substantial legal costs were saved by our client as we were able to reach an early resolution. Further, as litigation was avoided, the trading relationship between the parties was salvaged. Upon reviewing a matter, Lovetts considers both the legal position and commercial position. We see the advantages of early settlement, as if the matter progresses, often the only winners are the lawyers, which is not what Lovetts are about.
It happens in every business and in every industry – debt recovery. Clients and customers pay invoices late and even former employees might fail to pay back overpayments to them. You’ve called. You’ve emailed. You’ve sent letters through the post. Nothing works. It’s at this point that businesses should begin considering turning to a debt recovery firm. These firms specialise in getting the money that needs to be paid. They understand what works and what doesn’t. However, because of the vast number of debt recovery firms on the market, it can be difficult to find the one that’s right for you. The following are a few, (hopefully unbiased) tips to guide you through this process:
1. Research
Before any decisions are made, it is wise to complete a little bit of due diligence. Debt recovery firms may look like a good fit for your organisation at first glance, but once you dig a little deeper, you’ll see that they might not be exactly what you’re looking for.
Look into what industries the firm specizalises in, or at least has experience in. If they’ve never worked with companies that are in your sector, they may not have practice speaking in the terms that are most appropriate for your industry. In other words, you want the firm that you work with to maintain your public image, as well as bring in a satisfactory rate of debt recovery. You should also explore whether the firm mainly works with commercial or consumer debt, what size businesses they typically work with, and if they have experience dealing with the type of debt associated with your industry.
You should also look into size. Some firms are made up of just one individual while others are large corporations with thousands of employees. Bigger firms can typically handle bigger and more debt recovery cases. Just be sure that they aren’t too big, leading to a poor personal business relationship and poorer quality service. As long as they can handle your case load and utilise state of the art technology, you can be more secure in the firm’s financial stability, scalability, efficiency, effectiveness, and customer service.
Finally, before you make a decision on a firm, be sure to look at their history. The longer a company has been around, the more experience and success they’ve likely encountered. This experience indicates that they provide good returns, understand the regulations in your industry, and are familiar with various recovery procedures. They probably have a system in place for their collections that has been slowly perfected and will reliably achieve the results that they promise. Another beneficial aspect of a recovery firm with a history is that they know how to adjust to regulatory and technological changes without disrupting their current operations—meaning no surprises for them or for you.
2. Contingency Costs And/Or Fixed Fees
It’s never a wise choice to go with the cheapest firm. What you pay for is generally what you’ll get. The best case scenario with low-cost firms is that you won’t get much of a return. The worst case scenario is that your reputation will take a hard hit. But when looking at a firm’s fees and costs, you need to dig a little deeper because how agencies charge for their services can differ. Some firms will have a contingency fee. In other words, if the firm doesn’t recover the debt then they won’t charge you. If they do collect the debt, they’ll generally charge a percentage of the amount collected. It’s also important to remember that a firm may not have a set contingency fee. The fee could change over time based on how old the account is, how many debts have been collected, and more. Other firms may provide fixed fee debt recovery services. This usually starts with a small fixed fee for a letter before action… Some firms offer options to be charged either a fixed fee or a contingency fee. The choice would be yours.
3. Review The Process
To ensure that the firm is a good fit for your debt recovery needs, you should take a look at their practices. Do they start small and then expand their efforts? This would look like sending letters and making phones calls. If no progress is made, a transition to legal proceedings is made.
The use of tracing is also a good indicator of how effective the firm’s recovery services will be. This method enables them to find debtors who have moved addresses and changed phone numbers. It can also be a good idea to see if there are any testimonials or recommendations from businesses that have used their services before. This is a perfect way to understand how their practices could affect your reputation. It’s best to partner with an agency that avoids harassment, using profane language, or calling at inappropriate times of the night or morning.
4. Check For Insurance, Licensing, And Compliance
You don’t want to work with a firm that isn’t compliant with national regulations. This includes fair practices, telephone consumer protection practices, medical collections privacy practices, proper licensing and more. But to cover all of your bases, you should check to see if they are insured and regulated.
Debt Collection Clauses
for Terms & Conditions
Costs recovery clauses to assure a cost free
debt collection service
The level of trade between exporting nations and the United States is continuously increasing. Now, the United States is buying nearly one-and-a-half times as much from other countries as it is selling to them (exports at $1.6 billion, imports at 2.2 billion. However, indebtedness to UK creditors is among the lowest ratios imports/exports is only .98). The ratio of imports/exports worldwide is rapidly increasing as the world becomes more industrially advanced. It is increasingly important for international creditors to understand U.S. law regarding collecting debts in the U.S.A.
Credit Bureaus and Credit Agencies
For one thing, in the United States there is far more access to access to credit information relating to individuals and businesses than other countries. Sophisticated computer databases of credit information are operated by the reporting agencies. These allow creditors to assess to determine the credit risk of virtually all individuals and business who have ever established credit. The databases provide information helpful in determining whether to open a collection process or litigation.
There are numerous and varied debt collection agencies in the U.S.A. Some are nation-wide agencies with offices across the country or in other countries. Some are industry specific. Some limit their scope in other ways.
The activities of collection agencies in the U.S.A. are governed by Federal and State law. Recovery of debts in the United States may be especially challenging for foreign debtors. The legal system around debt recovery was devised with a sympathy for the debtor and the prevention of harassment in collection, restricting the ability of creditors to telephone or mail them.
When a collection agency has difficulty making a collection and judges that legal action is necessary, they will usually recommend referral of the case to an attorney licensed in the state where the collection is to take place. Almost all collection agencies and lawyers accept debt recovery cases on a contingency basis, sometimes with added costs that may not be contingent. Payment to lawyers or collection agencies is the responsibility of the creditor. There are times when the costs of collection are greater than the debt to be collected.
International Debt Collections
The legal system in the United States is an adversarial system, based on English Common Law. Both parties in law suits have to present evidence to prove their cases. It is complicated by the face that each state, as well as the federal government has its own court system and individual laws. While basic principles of international accommodation and “courteous recognition of another country’s laws” does apply between the U.S.A. and other nations, a final judgement in another country is not necessarily enforceable in the United States.
Most of the time, international creditors will have to bring a court action in the United States. Not only that, but in the United States, each state specifies statutes of limitations within which a creditor must file an action to recover debts. These time limits vary from 3 years to 6 years (also depending on the kind of contract the debt is based on).
Any debt collector who tries to collect debts outside of the statute of limitations in a given state is in violation of the Fair Debt Collection Practices Act. International creditors should also take note that the exchange rate they will receive for United States currency may be determined by the date of the contract originally agreed to. It may also vary from state to state.
Collection Professional Organisations
The Commercial Law League of America (CLLA) is the oldest private non-profit organisation of commercial collection agencies and lawyers in the United States. It maintains a membership list of collection agencies and attorneys who specialise in bankruptcy and creditors’ rights law available to members.
Collection Profile
According to the United States of America Collection Profile: “The payment culture of domestic companies is becoming increasingly uncertain and, in the absence of a harmonised framework on late payments terms remain a mere contractual issue and the average DSO [Days Sales Outstanding] tends to be high.
“The profile study finds that the court system is complicated by a federal structure that does not include debtor protection mechanisms and simplified proceedings for settle even the simplest files. There are significant delays and costs associated with collections. Furthermore, once the debtor becomes insolvent, collection of debt becomes very complicated. The bankruptcy system is pro-debtor. In practice bankruptcy re-organisation drains resources and reduces the likely collection possibility. In most states, debtors’ personal assets are protected. There is a possibility that a corporate entity who goes bankrupt will be listed as “no asset” cases. This means that after liquidation, the likelihood of collection is reduced to zero.
Payments in the United States normally take place within 28 days on average. However, delays (DSO) of 5 to 10 days tend to be increasing, especially by larger companies. In some instances terms can extend to 90 days or even 120 days. Some business have become very “relaxed” about invoices. It is not uncommon for companies to see companies extend their payment terms to their suppliers without notice, suggesting a corporate belief that extending terms is a right.
The larger the companies appear to use their buying power to intimidate debtors. Payment terms are not regulated by law, but are agreed to as part of the original purchase contract. Late payment interest may be added to an invoice up to a legal limit imposed by the debtor’s state. If it comes down to collections, the creditor cannot legally charge the cost of collections unless the original contract includes that practice, signed by the debtor.
What law is your contract under? Save your company time and money by being on the ball when it comes to jurisdictional and governing law clauses.