Despite taking the appropriate precautions concerning new customers, or despite a well-established, long-standing relationship with an old customer, it is inevitable that you will face a situation where the customer has not paid within your terms. In this issue, we will address the steps you can take to increase the chances of post-delinquency payment to you.
It is important to have a system in place which allows you to promptly follow up on accounts that have not been paid within terms. Experience dictates that your likelihood of success in collecting a delinquent account decreases in proportion to the amount of time that the account is past due. The fact that the account has gone past due should be taken as a warning sign that the customer may now be facing other financial difficulties of which you are not aware and which in all likelihood mean that other creditors are also seeking payments from the customer. If this is the case, only the most prompt, diligent, and persistent creditors may receive their payments prior to the company’s possible demise.
Therefore, contact the customer immediately regarding the past due account. Inquire as to the reasons for the nonpayment and obtain a firm commitment as to when the payment, or an acceptable portion thereof will be made. In any event, you must get a commitment from the customer to pay a sum certain by a date certain. Confirm that commitment in a letter to the customer which should also confirm any conversation you have with the customer that the reason for delinquent payment is in no way related to the quality of the product or services you provided.
Followup on the agreed deadline date immediately if no payment is forthcoming. Depending upon the circumstances, you may wish to set a final deadline date upon which the account will be referred out to your attorney for collection. Keep in mind that your attorney may also be required by the Fair Debt Collection Practices Act to send a 30 day letter to the customer prior to initiating legal action. When added to the time period established by the Pennsylvania Rules of Civil Procedure and the civil backlog in your local county court, it could be at a minimum an additional 3 months until a judgment is obtained against the customer in the event legal action is necessary. Be sure that your counsel takes each step in the collection process as soon as each step may be taken under the law. Remember that any delay on your part or your attorney’s may convey the wrong message to the customer about your seriousness in pursuing the matter to a conclusion.
Once judgment has been obtained for the debt due and owing, Pennsylvania law provides the creditor with various options to execute upon the judgment. First, any judgment obtained at the District Court level may only be executed by personal property levy. A District Court judgment does not become a lien on any real estate in the county owned by the Defendant. Therefore, it is wise to have the District Court judgment transferred to the County Court of Common Pleas to establish a lien on any real estate and to afford you the additional judgment execution alternatives available under Pennsylvania law. These options include attaching the defendant’s bank account, thereby requiring the bank to pay the monies to you directly. An attachment can also work upon any other parties which may owe monies to the defendant. In addition, the judgment may be executed by a levy upon any personal property such as equipment, vehicles or inventory owned by the defendant. Finally, if there is a lien upon real estate, it may be possible to have the real estate sold at sheriff’s sale. If you are unaware of any assets owned by the defendant, the defendant may be subpoenaed to a deposition to produce documents concerning it assets and finances.
Abank attachment is often the “cleanest” form of judgment execution, but knowing where your customer banks is necessary to make this process work. Hence, keeping track of your customer’s bank either by a reference and account number on the credit application, or by photocopying checks for payments on account, however small, will give you this crucial information for use once you have obtained a judgment.
Each step in the post-delinquency collection process as outlined above should serve to increase the pressure upon the debtor to pay the outstanding balance due and owing to you. By taking each step promptly and carrying through on each deadline established, you are sending a clear message to the debtor and establishing your credibility by carrying out the collection effort. Remember that a judgment, and execution thereon, is the only way to compel payment from a party owing an outstanding debt. While no one looks forward to taking this step, you deserve to be paid in a timely fashion for goods and services you have provided to others. Since some attorneys will handle certain types of collection matters on a contingent fee arrangement, you should consider placement of the account in a timely fashion that maximizes your chances for recovery over other competing creditors.