The Art of Always Getting Paid And in some cases The Science of Sometimes Not Getting Paid… Which...

The Art of Always Getting Paid

And in some cases The Science of Sometimes Not Getting Paid…

Which is it…An Art or a Science

Business CollectionsBusiness Collections

Copyright 2011, The Collection Law Group, Inc.

Brad R. Magill, Esq.Managing Partner, The Collection Law

Group, Inc.Who is The Collection Law Group, Inc.How did I get where I am today

IntroductionIntroduction


What we will CoverWhat we will Cover

Focus of my discussion for next EIGHT hours…

Internal collection efforts External collection topics

Relevancy of course to CPA firms and their clients


Why Credit And Collections Why Credit And Collections Are So Important In This Are So Important In This

Economy Economy

SBA Statistics


Source: Small Business AdministrationSource: Small Business Administration

There are about 27 Million businesses in the US Almost 700,000 businesses closed last year About 60,000 businesses filed for bankruptcy last year Thirty percent of new businesses fail within first two years Fifty percent of new businesses fail within five years There are about 15,000 public companies There are about 10,000 companies that share A/R

information Companies are here today and gone tomorrow With the above statistics is no a wonder that companies

today have a very difficult time making credit decisions?


So…what is the answer…So…what is the answer…

Need to take an approach that is both scientific and artistic.

Time is of the essence handout 2

Today more than ever internal credit and collection policies are essential


It All Starts With CreditIt All Starts With Credit Can’t have a collection issue without extension of

credit Collection Process starts with good credit

decisions Have a credit policy Understand the impact of “The Multiplier” on

credit decisions – Handout 3 Is all bad debt bad? Have a credit application


What is basic information on What is basic information on credit application?credit application?

Vital personal and company information Handout 4 Get personal guarantee – Handout 5…Why Get personal financial statement…Why Include late fees and collection costs…Why Have it signed…Why Make a credit decision based on information

available…(application, references, clients, internet, etc…)


If Service firm have an If Service firm have an engagement letter engagement letter

Do you as a CPA have a credit process? Why have an engagement letter Include important terms in letter

– Hourly rates– When invoices are due– Penalties if invoices not paid or not paid on time– Sign off on hours worked– Get engagement letter signed…Why?


So you have a credit policy and So you have a credit policy and goods or services have been goods or services have been

delivered or performed delivered or performed andand Surprise…the customer/client does not pay…Now

what??? First have a firm internal collection policy and

procedure– When to call…How to call…Who calls…How

may times are calls made…What is said in each call…Send letters…How many letters…What is said in the letter…

Implement the internal collection procedure Copyright 2011, The Collection Law

Group, Inc.

Internal Collection EffortsInternal Collection Efforts

Who does your internal collections?Should an account executive do collections?Should a partner/principal do collections?Should you introduce a new internal person

to collect from debtors?


Some Keys To Internal Some Keys To Internal Collection EffortsCollection Efforts

Figure out what will motivate the debtor (fairness, credit, principles, relationships)

Know your objectiveAsk for the moneyControl the agendaCalls and letters should be firm and

professional and not emotional and personal


Why do internal collection Why do internal collection efforts fail?efforts fail?

Debtor is A staller Disputing amount due Out of money Going through adverse times A poor budgeterSo despite all efforts…


Internal Collection Efforts Internal Collection Efforts Have Stalled …Now What???Have Stalled …Now What???

You explain to the debtor that their lack of payment will cause the European economy to continue to spiral downward

Find the debtor’s spouse and explain they can’t go on that cruise because bills are still unpaid

Call the debtor’s kids and explain that the new Xbox belongs to us because it was paid for with the tax refund we created

Call the debtor’s neighbor and explain that property values are declining due to the debtor not paying bills

No…we can’t do any of those things…


Determine if the time is right to send to a third party

Determine if the account has value

Despite doing all the right things Despite doing all the right things internal collection efforts have internal collection efforts have

failed …What nextfailed …What next


When the debtor posts a note a facebook that says “catch me if you can”.

When your demand letter gets returned to you with a post card from the Cayman Islands and it says “Gone Fishin”

When you get an auto reply email from the debtor that says ‘SUCKER”

If above happens it may be too late…How can we make sure we are not too late…Handout 6…

When good communication ends?

When Should You Place An When Should You Place An Account With a Third Party?Account With a Third Party?


Time is of the essence…

Distinguish between commercial and non-commercial account.

Time is of the essence when it Time is of the essence when it comes to placing commercial comes to placing commercial

accounts for collectionaccounts for collection


Actions Speak Louder than Actions Speak Louder than WordsWords

Actions speak louder than words … Is it too later when… Parking lot goes from 200 cars to 2 800 number no longer works The regular number is now answered “Hello

debtors anonymous “ There is a sign on the front door which says

“CLOSED” Make sure accounts get sent out to a third party

before it is to late Copyright 2011, The Collection Law

Group, Inc.

What is a viable valuable account from a collection standpoint

If the account is viable send it to a third party. If not viable write it off.

Third parties are not magicians Some clients expect us to go above and beyond Why Use a third party to collect – Handout 7

Determine if The Account Has Determine if The Account Has ValueValue


A law firm

A collection agency

A collection/law firm

Does size of the claim matter in deciding?

Who should you send an account Who should you send an account to once decided it is a viable to once decided it is a viable

third party accountthird party account


Do they understand your business? How do they charge?

– Contingency vs. hourly– What is a fair contingency fee?

Do they have the ability to impose consequences ? Who will actually be doing the collecting? Do they have litigators at their disposal? Do they litigate on a contingency basis?

– What is a fair contingency fee?– Should you chase bad money with more money?

Who manages the litigation? How do they report status of things?

Things to think about in making a Things to think about in making a selection of who to send the selection of who to send the

matter matter


ConsequencesDebtors are like childrenImposing not just consequences but adverse

consequences is the keyIf consequences cannot be imposed

collection efforts will simply not be effective

Why are third parties successful Why are third parties successful at collecting?at collecting?


Past due ARPast due payments under any type of

agreementAccounts with reconcilable disputesUncollected judgments

What types of accounts will you What types of accounts will you be sending to a collection firmbe sending to a collection firm


Collection first approach as opposed to litigation first approach– Direct communication with highest level– Direct communication with in-house counsel if available– Direct communication with outside counsel if available– Emails– Faxes– Letters– Key to collection first approach is “fear of consequences”

Do collection letters work vs. email or fax? How about using a draft complaint? Sometimes the best collection letter is service of a complaint What if we cannot find the debtor?

What is the best approach a third What is the best approach a third party collection firm can take?party collection firm can take?


Collect 100% of monies due

Collect a percentage of monies due

Work out a payment plan for all or a portion of the amount due

Result sometimes is…The science of not collecting

What are results of collection What are results of collection approachapproach


Write it offLitigateHow long does it take to make that

decision?Do deadlines have an impact on

collections?

What do you do if you cannot What do you do if you cannot collect amicably?collect amicably?


Who decides whether to litigate?What types of claims are worth litigating Where do you litigate?What are the costs to litigate?What role will you play in the litigation

– Pleadings –Complaint, Answer, Motions– Discovery –Depositions, Interrogatories, Etc.– Trial -Need a Witness

Litigation DecisionsLitigation Decisions


Process of litigating…getting expectations in order… Possible outcomes

– Immediate settlement upon receipt of complaint– Settlement after filing of complaint or beginning of

discovery– Lose at trial or on a motion– Win by getting a default judgment or summary

judgment– Win at trial

If lose you lose (appeals not likely)…If win what next?

Decided to litigate…Now whatDecided to litigate…Now what


How Do You Collect On A Judgment Judgment Creditor Just Pays It Garnish Wages Garnish bank Accounts Garnish receivables Levy Assets Which is best? How do you find assets Debtors Exam or Audit Sometimes you win the battle but lose the war..

So You Get a Judgment…So You Get a Judgment…Now WhatNow What


A Word or Two on Payment A Word or Two on Payment PlansPlans

Do they work?How do you structure them?Can you do a payment plan after you start

litigation or after you get a judgment?What are problems with payment plans?


Impact of bankruptcy on Impact of bankruptcy on collectionscollections

Preferences Is putting a company out of business or in BK

helpful to us? Practical approach CMS SC Bottom line: Make sure payment plan keeps

company in business throughout the preference period


Monthly /Weekly UpdatesMake sure file is being worked.Create metrics to analyze effectiveness

– Time to collect– Percentage collected– Litigation management

How to Manage a third party?How to Manage a third party?


Write downs vs. write offs How can you prevent write downs? Are you willing to lose the client? Is a nonpaying client a good client to have? Can you get paid when service is delivered? Can you have a good future relationship with a client that

continues to write down bills? Have reasonable expectation s about what clients are

willing to pay for your services

Practical Aspects of Collecting Practical Aspects of Collecting in the CPA Service World in the CPA Service World


How to account for bad debt How to account for bad debt writeoffswriteoffs

Two methods– Direct Write -off– Allowance Method

Which one is used for tax purposes?Which one is GAAP?Which one do most small businesses use?


58 Properties Birdwell West Penn Strategic Monty The Rub PR 4 Winds Accounting Firm Truckers

Case StudiesCase Studies


QuestionsQuestions


The Art of Always Getting Paid…Well usually not always but most of the time if you

handle accounts properly– Have a credit policy– Have a collection policy– Send to third party timely– Manage files

ConclusionConclusion


The Art of Always Getting Paid And in some cases The Science of Sometimes Not Getting Paid… Which...

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