Collection of Your Accounts Receivable

March 3, 2010  |  Joan M. Quade

By Joan M. Quade
Spring 2009 In Brief Newsletter
In these tough economic times, companies find that payments on their accounts receivable are delayed and diminished.  More and more of their customers cannot pay on time.  Some cannot pay the invoices in their entirety and have resorted to smaller, drawn out payments for services and goods, while others have not been able to pay at all.
Money is less plentiful but if your customers do not pay, it affects your ability to meet your company’s obligations.  In years past, most companies could afford some nonpaying and slow paying customers, but when many of your customers are having financial difficulties, your company must take action  to ensure your own company’s survival.  You have supplied the goods and services and you should be paid for those efforts. Ignoring your mounting accounts receivable could lead to your own company’s damage or demise.
Every company should adopt a procedure for collection of accounts receivable.  Such a procedure should be in place during thriving economic times as well as during the tough economic times so that corporate value is not being lost through inconsistent and ineffective collection procedures.
To work effectively, a collection procedure should be in writing and adopted by the company’s management team.  Training should be done for staff who will implement the collection procedures so as to provide consistent and effective application of the collection procedure.  There are many considerations in developing such a procedure, including preserving customer relationships.
The collection process should be progressive in that the initial actions to collect will consist of mild prodding reminders and then should progress to the most aggressive forms of collection.  The mildest reminders may include card or letter reminders, followed by phone calls from staff.  If that is unsuccessful it many be followed by more aggressively worded correspondence and a call from the collection manager.  These efforts will be enough  with many customers.  However, in this economic climate, more and more customers must be taken to the next level.  If the progressive collection efforts do not work, the company must decide whether  to involve legal counsel, who could send a collection letter, make a call and/or sue to collect the account. If the account is small (less than $7,500) the company may want to sue in conciliation court.  Conciliation court provides a less expensive and quicker way to obtain a judgment for the amount owed.  The filing fee is only $50 -$70 depending on the county, and most courts will schedule a hearing within six months.  If the amount is greater than $7,500, the company must sue in regular district court.  The filing fee in most counties is $250, and it can take a year to get to trial, if the defendant disputes the claim.  Many defendants who are in collection do not dispute the amount and a default judgment can be obtained fairly quickly without waiting an entire year.  Once a judgment is obtained, then collection on the judgment must start by finding what assets the defendant may own.  If the defendant has assets, then there are ways to determine what those assets are and how to collect them.  Some assets are exempt under Minnesota law.  Others are collectible to satisfy the judgment.
This article gives only a brief overview of the collection process. Before attempting collection you should seek legal advice regarding the specific laws related to collection and litigation.  We have assisted our clients in developing a progressive collection procedure and in sending collection letters and making calls for our clients to help them collect their accounts receivable.  This has helped to optimize their own value and maintain their revenues even in a tough economy.  We can assist in bringing conciliation court actions or district court lawsuits for small as well as very large collection matters.  If you need assistance in setting up a progressive collection procedure or in collecting your accounts receivable, we would be happy to assist you in your efforts.  We can advise or partner with you to optimize your efforts.  Give us a call to discuss how we may be able to assist you in your business.