Minneapolis Business Lawyer

When Customer’s Don’t Pay.

Nathan M. Brandenburg, Esq.

A natural result for many businesses during any economic down-cycle is that more customers fail to keep their accounts current. Many times customers simply need more time to pay and will eventually pay-up on their accounts. However, sometimes customers either decide to use their vendor as a financing source or simply cannot pay their bills as they become due. Nonetheless, there are certain things a business can do to improve its chances of collecting upon its past due accounts if it has to resort to collection remedies, such as initiating a lawsuit and collecting upon a judgment via garnishment or asset seizure.

Keep Detailed Invoices

You should send invoices to customers on a per-job or monthly basis and keep copies of all such invoices. Moreover, your invoices should clearly set forth what work or service was performed and when it was performed.

Keep Copies of All Communications

You should always retain copies of any communications you have with customers regarding their accounts, especially if such a communication was about any type of agreement regarding payment of past due balances. If you had a telephone call or in-person meeting with the customer, follow up the conversation with an email or a letter that states what was agreed to and for the customer to contact you immediately if you misstated anything in the email or letter.

Keep Copies of Payments

If a customer pays via check, keep a copy of the check. If a customer pays via credit card or wire transfer, you should keep this information on file. This information is invaluable if you have to initiate a lawsuit to collect upon a customer’s past due account. If you already know where the customer banks, upon obtaining a judgment, you can initiate a financial institution garnishment where the bank will freeze any funds in the customer’s bank account up to the amount of your judgment. You can then request that the Sheriff seize these funds and deliver them to you. In some instances, you can go from the start of a lawsuit to obtaining funds via a financial institution garnishment in as little as one hundred and twenty (120) days, although the process does take longer in Hennepin and Ramsey counties.

The Importance of a Contract

In many instances, businesses would be well-served by having a written contract with their customers that outlines the business’s relationship with its customers, how it gets paid and what happens if it doesn’t get paid. A contract is always in the best-interests of the person or business providing services or products and is usually in the best interests of the person or business receiving said services or products. The presence of a contract can allow for things such as the granting of a security interest to further protect the product or service provider or the provision of payment of attorneys’ fees and costs for the collection process.

Conclusion

Effective debt collection requires decisive action and diligence. Businesses that have a plan for dealing with late or bad debt are often able to achieve a level of profitability than businesses who simply do not proactively manage their accounts receivable.