No one making a loan or extending business credit wants to have to file a lawsuit in order to collect. Civil litigation can be expensive and time-consuming, and it is an imperfect system at best. Prudent creditors consider the potential downside before credit is extended, not after. Asking some pertinent questions and a bit of sound planning can go a long way to increasing the likelihood of debts being collectable if the borrower will not pay in accordance with contract terms. It is critical for creditors to understand the nature of the business entities to which they are selling goods and services and the persons and assets behind those entities. If an account becomes delinquent, and reasoned discussion between the creditor and debtor cannot prevail, legal counsel will be much more effective armed with information, documents and legal rights that can only be put in place in advance.
Obtaining a legal judgment may not be difficult. But collecting on a judgment from a debtor’s assets and penetrating business entities determined not to pay is a challenge even in the best of circumstances. This program is intended to assist business owners, financial officers, credit managers and attorneys to: (a) accumulate critical customer information before extending credit; (b) effectively manage a credit relationship; and (c) develop an effective plan of litigation.
- Forewarned is Forearmed
- Learn about your customer and its assets.
- Utilize an effective credit application.
- Consider requiring a security interest, guaranty or letter of credit.
- Utilize statutory protection for sellers of inventory.
- Manage the Credit Relationship
- Monitor the borrower’s performance systematically.
- If there is a problem, communicate early and persistently.
- Strive for a regular payment stream.
- Carefully consider when to resort to litigation.
- Develop a Plan of Litigation
- Explore and exhaust other collection opportunities.
- Watch statutes of limitation.
- Thoroughly identify your defendants.
- Consider the end game.
- Understand the forms of relief available.
- Consider the Risks of Bankruptcy
- Understand the differences between Chapters 7, 11, 12 and 13
- Respect the bankruptcy stay.
- Assess the risk of a preference claim.
- Consider the impact of the bankruptcy discharge.