In the first three installments of this series, we examined the relevant issues facing a small business owner who has outstanding accounts with current customers. In this fourth and final article, we will deal with protecting the small business owner on a proactive basis, instead of the re-active approach required when dealing with current clients. As I have preached to my clients over and over again, the main weapon in your arsenal is information, information, information. As much as you can gather on your prospective client. Not only will this dramatically improve your chances of recovering the debt through legal process, but it often has the effect of screening your customers in a way you may have never done before, thereby preventing you from even stepping on the landmine in the first place. It can not be stressed enough that information is key. The more you have of it not only betters your decision making process, but it helps tremendously in collecting on a debt. The information gathering begins immediately when a prospective client walks through your door. You should engage in the practice of filling out an information form with all pertinent information on the client. Start with the basic information, but make sure you get all of it. It seems rudimentary, but you would be surprised how many times this gets overlooked. Make sure you get the full name and address of the prospective customer. If it is a business, make sure to get a home address as well if possible. Get all contact numbers and emails, as well as alternates of each for your file. In addition to the basic information, get more vital information. For an individual, get a social security number; or for a business, its EIN number. Get this information especially if it is a large account and ask permission to run a credit check. There are numerous companies in the market place which will conduct credit checks for nominal fees. These credit checks can tell a lot about the stability of the entity, with information such as credit which as been extended, judgments, lawsuits, and late payments. You can not rely solely on this information as it is never a complete look into the security of the entity, however, it does go a long way in helping you determine if there is any risk involved. Now that you have the basic vital information, you need as much secondary information as possible. One of the best ways to get this information is by getting the prospective customer's payment information. Try to obtain the customer's credit card number to process payments. Another good practice is to accept the first payment by check. Accepting a non-certified check gives you two very important pieces of information, where they bank and their account number. As stated in previous articles, one avenue of execution is to freeze bank accounts. By getting this information early it greatly aids in execution later on. Another piece of information to obtain is the customer's license plate number off of their vehicle. Write this info down and keep it in the file. There is always a possibility that should the need arise, you could execute against the customer's vehicle in order to recoup the debt. Finally, the last measure taken needs to appear on your contract itself. You need to have an attorney's fees clause written into your contract. These clauses are very simple and are very often overlooked by business owners. Put simply, it is a clause that states that should you be required to retain an attorney to represent you as a result of their breach, they will be responsible for your legal fees. You will then be able to file a lawsuit for the debt owed, plus reasonable attorney's fees. It is critical that this clause be in your contract. Otherwise, when having to recover the debt through legal process, you will never become "whole." This is one of the biggest complaints I hear, that they are simply owed the money, yet they do not receive all of it due to having to hire counsel. Simply by including this clause in your documents will allow you to recover your counsel fees upon execution. You still may be required to pay monies to your attorney upfront, however, you will still have the opportunity to make it up later on. This series of articles was prompted by our very uncertain economic climate. I have personally seen these types of cases rise dramatically and can only surmise that they will continue to rise for the foreseeable future given the current economic outlook. While I agree with many of my clients who take the position that it is the customer's duty to pay, the real duty is upon the business owner to protect himself from being taken advantage of. These articles are meant to help educate the owner on how to possibly avoid these problems, but are in no way to be considered legal advice on collecting accounts. You should take this information and find competent legal counsel to advise you on these matters. Your attorney will then be able to work with you in formulating and implementing these systems to your benefit.
About the Author
Ronald C. Isgate, Esquire is the Managing Partner of Isgate & Chiccarine, P.C., a full service law firm located in Bucks County, Pennsylvania that concentrates its practice in Small Business and Real Estate law. Mr. Isgate can be reached via telephone at (215) 396-1020, risgate@isgatelaw.com. For more information please see our website www.isgatelaw.com.
