It's the start of another year and that means it is a good time to give your organization's accounts receivable policies a thorough check-up. The weak economy, a change in your customer's corporate status, and even a change in a customer's personal situation can all impact your ability to collect on those accounts. Here are a few suggestions to help you get the New Year off to a fiscally sound start.

Take a look at your credit applications and credit agreements to make sure you have all the information you need and that you are protected in the event of a default. For example:

• Does your credit agreement specify the proper and correct legal identity of the customer? Are you able to discern whether the customer is a sole proprietor? A limited partnership? A corporation? Knowing the identity of the customer is key to formulating your strategy should collection become an issue in the future.

• Does the agreement specify an amount for interest in the event the account goes into arrears? Make sure that your contract is clear on the rate of interest that must be paid. Absent an agreement, many states dictate a percentage for interest and you don't want to be left settling for a lesser amount by neglecting to include a provision for interest.

• Does the credit agreement provide for the recovery of collection costs or attorney's fees if the account goes into default? It's a good idea to enter into any credit arrangement with an eye toward how the collection will be handled should the account end up in default.

  The New Year is also a good time to revisit your existing accounts to make sure that the information you have on file is current and that your customers remain creditworthy. For example:

  • Find out if your existing customer has undergone a change in legal status. Perhaps you entered into an agreement five or six years ago with a sole proprietor who is now operating under a corporate umbrella. A change in status can affect your collection practices should a default occur.

  • Take a look at your existing accounts to make sure that the information you have regarding assets and credit is still current. Your customer's business and/or personal status may have changed since the credit application was filled out. For instance, are your customer's personal assets held jointly with a spouse? If so, you may want to get the spouse's signature for guarantee. You will need to be careful, however, that you don't run afoul of the Equal Credit Opportunity Act when requesting a co-signature. Also, your customer may be going through a divorce and assets could end up part of an equitable distribution in a marriage settlement agreement. Check with your customer directly to see how this change in status could affect the business' ability to pay.

  • Watch for warning signs that your customer's business could be in trouble. Has there been a slow down in payments? Is your customer reporting a slow down in his accounts receivables? The time to work out a new arrangement is before collection becomes an issue.

  • Look to see if credit enhancements, like guarantees, letters of credit or security interest might improve your chances down the line.

Happy New Year to all!

2003 is here and the officers and staff of Commercial Collection wish all our readers a very happy and healthy New Year.

2002 has presented many challenges but we've had another successful year due not only to our loyal clients but also to many new friends we are now proud to represent. We expect 2003 to be even better for all of us.

Please accept our sincere Thanks and Appreciation for allowing us to work with you. We look forward to a long and prosperous relationship.

Bob Ingold
President, CCC

I have a body, a neck but no head and two arms but no hands. What am I?

Answers to last month's riddle: What can run, but never walks; has a mouth, but never talks; has a head, but never weeps; has a bed, but never sleeps? A RIVER!

CONGRATULATIONS goes to SUE LANDEL on her promotion to Vice President of Collections. Sue has been with CCC for 13 years. During that time, she has worked in the Legal Dept. as a Legal Supervisor and Collection Dept. as a Collection Supervisor.

A client of ours placed an $8,000 claim against a NJ debtor. After considerable negotiation, the debtor offered, the client accepted and we processed a $5,000 settlement for the account. Our account executive provided a letter stating "Acct #1234" was being settled for $5,000 on behalf of client X. The debtor endorsed his check "Accepted as payment in full for all debts to creditor X."

Little did we know that our client was still trying to collect a $60,000 debt. Needless to say, the debtor now claimed they had settled the entire matter and produced our check with "Paid in full" on it. At this point, the client now placed the $60,000 claim, which we promptly sued.

To make a long story short, the judge ruled for client X, advising the debtor never proved the merits of an accord and satisfaction. That is 1-a dispute was raised, 2-the check was willingly accepted against the disputed account. Because we provided a letter outlining what account was settled, the judge saw right through the debtor's intent; he was trying to steal $60,000 worth of credit from our client. I must caution you, that not every state is as smart as NJ.

In our next issue, we will cover this subject in depth based on new enactments of the UCC.

Over the 40 years we have been in business, we have witnessed many changes in credit management. In today's marketplace, corporations now realize they must re-examine how they do business in order to increase revenue and profits. As a result, companies are forming relationships with other companies that can provide needed services that they cannot. In the credit industry, Outsourcing services has become a key ingredient in maintaining a high level of cash flow for the company. Is your department struggling with cutbacks both budget and staff? With Strategic Outsource Services…SOS… you have the ability to compete more effectively by allowing us to give you access to more resources and talent thus creating more business opportunities.

LET'S TALK about how we can form a successful partnership to help you in achieving your business goals.