Does anybody owe you money?   I thought that might get your attention.  Both law firms and the clients we represent are living in an age in which collecting money has become unreasonably difficult.   This article provides some suggestions as to how best to approach collections from both a practical and legal standpoint.

1.            Make Sure you Have a Signed Contract With Your Customer.

     Whatever type of business you are in, whether you are an attorney or you sell widgets, it is always best to have a written contract with your client or customer.  The contract should spell out in detail the nature of your services and how you will be compensated.   The contract should provide a deadline for the client and/or customer to object to the invoices rendered and, if no objection is made, the objection is considered waived.   The contract should also contain a provision for attorneys’ fees in the event the filing of a lawsuit is necessary together with jurisdiction and venue provisions.  The execution of a written contract is the first step in ensuring that you will be paid. Contact your lawyer to prepare the contract; don’t pull one off the internet and do it yourself !

      2.         Get a Personal Guaranty.

     Personal guarantees  are often overlooked, particularly at the commencement of a business relationship.   Let’s face it, do you really know whether a prospective client’s corporation is solvent ?  Do you really know whether the company has a track record of profits or losses and whether the company owes money to creditors ?   Most often, you do not, particularly with small businesses for whom public information may not be readily available.   Thus, it is often a good idea to politely request a personal guaranty.   This will make your life easier later on when you have to sue the company, which is then out of business, and your only hope to be paid is to collect from the company’s principal.  Cases in which a personal guaranty has been executed are completely different than those where there are no such guarantees. The likelihood of settling a case in which you obtained a personal guaranty is far greater because of the risk of personal liability that the principal of the corporation will have.

     3.         Send  a Demand Letter

     No one likes to be sued.   Even worse, no one likes to be sued out of the blue.   Accordingly, it is often a good idea to send a demand letter to the prospective defendant first.   The demand letter should contain the required statement by the Fair Debt Collection Practices Act which should include the following: 

 (1) the amount of the debt;

(2) the name of the creditor to whom the debt is owed;

(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the collector;

(4) a statement that if the consumer notifies the collector in writing within the thirty-day period that the debt or any portion is disputed the collector will obtain verification of the debt or a copy of such verification of the debt or a copy of such verification or judgment and the same will be mailed to the consumer by the debt collector, and

(5) a statement that upon the consumer’s written request within the thirty-day period, the collector will provide the consumer with the original creditor’s name and address.


15 U.S.C.A. §1692g(a)(1-5).

      In the event that you do not receive a response, call your lawyer. See paragraph 5 below. Do not send demand letters threatening suit if you do not intend to follow through. You do not want to acquire the reputation of a bluffer.

     4.         Monitor Accounts Receivable and Work In Process.

     In the world in which we are living, it is likely that the debtor you are thinking of suing is being pursued by other creditors.   It is also likely that the debtor has a limited amount of assets.   Thus, it is in your best interest to be aggressive in collecting money that is owed.   How do you that ? Here are some suggestions.

     Monitor your accounts receivable. This means looking at the amounts you are owed on a regular basis, usually every week or so. It is not a good idea to wait until several months go by before you realize that someone, or some company, owes you a lot of money.

     Also, be aware of goods in transit and work in process. These are the two accounting categories which reflect what you, or your company, are currently working on. Generally, it is not a good idea to continue to ship goods or to provide services to someone who is not paying. If you do, you are only making matters worse as you get further and further behind.  Moreover, it is often interesting  to see a company’s reaction when the promised goods are not delivered or the services are not performed ? Very often the check will arrive in the mail because the customer needs the product or the service. This is often a good time to collect money.

     5. Call the Lawyer

     When all else fails, call the lawyer. Hopefully, you have taken the advice in this column and made your customer sign a contract and you have obtained a personal guaranty. This will make the lawyer’s job far easier if you are required to file a lawsuit.

     There are many people in the world who purchase goods and services knowing in advance that they will not pay for them. It is often hard to spot these people in advance; nonetheless, rest assured, they are out there. Try not to let them get away with it. Moreover, there are also people who have genuinely fallen on hard times and require more time to pay and honestly tell you that. These are people who you should work with towards obtaining an amicable resolution. Generally, people in the latter category are worth continuing to do business with while people in the former category are not. The trick is to be able to tell, to extent possible in advance, who is who. 

1 Comment

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  1. A demand letter which conforms to the FDCPA only needs to be sent on consumer debt. If the debtor is another business, the FDCPA does not apply. Moreover, even if the debt is consumer debt, the FDCPA does not apply if the creditor is sending the letter because the law applies only to 3rd party debt collectors. With that, this was a great post and this is a great blog!


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