Statute of Limitations for Debt in Maine: Can You Collect?

Posted by Marilyn Miller on January 21, 2019  /   Posted in Uncategorized
What is the statute of limitations for debt in Maine and how is it important to your business?

I have written a great deal on the many issues that could arise if you fail to monitor your accounts receivables diligently or if you wait too long to hire a debt collector or use the small claims court to recover money owed to you.

One of the most difficult conversations I have with small business owners is telling them that the statute of limitations has run out, and the debt is now not collectible. The statute of limitations is the period of time you can pursue a debt owed to you.  In Maine, the statute of limitations is 6 years. Why anyone would wait 6 years is beyond me, but it happens all the time.

 

Some people get busy or do not have the appetite for bad debt recovery. Still others may feel the effort involved is not worth the potential recovery if the person or business does not have money or assets to pay what is owed. However, just because they do not have the means today does not mean they will not have them tomorrow.  If you get one payment, even a small one, before the statute is up, you restart, or “toll” the statute. Similarly, if you believe there are available assets, if you take your claim to a Maine court and are awarded a judgment, your judgment is good for 20 years. Any number of things can change in 20 years.

Of course, if you get a judgment it will not collect on its own.

You have to continue to reassess the debtor and look for assets. Here is a case in point.  We received files from half a dozen business owners who were all owed money by the same person. All his assets were over-encumbered, and there appeared to be no way to recover anything at all. Some of the businesses went ahead and sued the debtor, while others did nothing but wait. After a few years, the debtor received a large monetary award. Those creditors who had monetary judgments were able to immediately attach the award and recover their money. Sadly, those who had waited could recover nothing because the statute of limitations had expired.

You certainly cannot afford the time or expense to take every case to court, so it is important to choose wisely. Sometimes it is a leap of faith, or a feeling that your customer will one day have the ability to pay, and other times it is just luck.

There are also many small business owners who are unaware that they have 6 years to pursue collection of a debt.  Of course, the longer you wait, the harder it may be to find the debtor, and you will pay a higher fee to the collection agency, but something is better than nothing.  If you do place an older debt with a collection agency, make sure they have the ability to “skip trace”, or locate your customers, since people are increasingly mobile in today’s world.

I do not mean to recommend that you wait 6 years. 

You have a problem if you have not been paid after 90 days, and you need to take action. Remember, those aging receivables sitting on your books cannot feed your family, pay your employees or grow your business. Cash flow is king, and you can control it.

Creditor Rights and Consumer Rights: Where They Intersect

Posted by Marilyn Miller on January 16, 2019  /   Posted in Uncategorized

Consumer rights and creditor rights are not mutually exclusive.  As respects collection of a delinquent debt, a consumer has the right to be treated respectfully. A consumer has the right to obtain complete and accurate information on the debt. Consumer rights are protected by the Fair Debt Collections Practices Act, or FDCPA a law put in place to shield consumers from abusive and deceptive practices by third party debt collection agencies.

The FDCPA is a very good law.

Consumers need to be protected from unprofessional collection agencies. You need only google “collection agency scam” to find a host of horror stories. Some of the news reported is not actually done by collection agencies, but by people pretending to be collection agencies to scam people by pretending to be the IRS, and so forth. Nevertheless, there are bad players among debt collectors – just as there are bad players in every industry. There are also many reputable collection agencies working hard to return money back to business owners and keep the economy moving.

Creditors also have rights, including the right to be paid for the work they do.

None of my clients want to work for free. Would you want to work and not be paid? Creditors have a responsibility to protect their right to be paid by communicating to their credit customers upfront the terms and conditions of their payment policy.

An effective debt collector stands at the intersection of consumer rights and creditor rights.

They are an advocate for their client – the creditor. The goal is and always should be to get the creditor paid. However, if consumer rights are protected, and the debt collector can clearly and professionally communicate with the consumer, chances of success are high.

Consumer debt collectors must be professional yet persistent. There really are instances where people have suffered a life even that leave them unable to pay. There are also instances when people do not take their responsibility to pay for services seriously. A good debt collector knows how to tell the difference.

So when does the process break down?

It breaks down when one or more of the parties neglect the rights of the other party. If a debt collector is abusive, chances are a consumer will take legal action. When a consumer does not respond to numerous requests for payment, then chances are the debt collection will progress and could impact the consumer’s credit rating or put the assets of the consumer in jeopardy. If a creditor is careless with their credit practices, and if they do not work in tandem with their collection agency, it will become difficult to get the best results.

Respect, professionalism and most importantly, communication are essential for all parties. Collection agencies must adhere to the law, and work with consumers to set up payment arrangements. Consumers should realize that when a debt is referred for outside collection, it is time to do something – even if that something is letting the agency know they cannot or will not pay. Creditors should trust and support their collection agencies, and give them all the tools they need to succeed.

Collection Agency: To Hire or Not to Hire?

Posted by Marilyn Miller on January 14, 2019  /   Posted in Uncategorized

Business owners hire collections agencies every day. Some business owners decide not to hire a collection agency. What are the reasons that business owners decide to hire or decide not to hire a collection agency? Which are good reasons, and which reasons are bad?

Good Reason: Hire a collection agency to find customers you can no longer locate

The internet, especially social media, provides a good deal of information on people. However, debt collection agencies have specialized tools and can take research to the next level. They specialize in finding people and their assets. The process is called skip tracing and it is critical to successful debt collection.

Good Reason: Hire a collection agency to save you time.

Collecting money takes time. All business owners need more time. Let a commercial debt collector help you so that you can spend your time growing your business.

Bad Reason: Hire a collection agency to get back at non-paying customers by trashing their credit.

I get it. When someone does not pay you, you are angry. Your trust has been betrayed. Some business owners believe the correct response is to submit the file to a collection agency to get the debt reported to one of the major credit rating bureaus. The fact is that while credit reporting can serve a purpose in debt collection, it is only a small part of the process, and due to changes in the law, the impact of credit bureau reporting is lessened. Reporting one bad debt is not going to ruin anyone’s credit. And reporting a debt alone rarely results in payment.

Bad Reason: Do not hire a collection agency because you do not want to pay the fee.

Collection agencies work on a contingency basis That means that they take a percentage of whatever they collect for you, but charge nothing if they are not successful. Which makes more sense, to recover something or to keep holding onto to an unpaid balance, hoping that it will collect itself?  Don’t like the rate? Well, the worst rate is zero, which is what you will get if you do nothing.

Bad Reason: Do not hire a collection agency because you are afraid customers will be angry and disparage your reputation online or in the community.

Are you afraid that customers will give you a bad google review if you send their file to a collection agency? I have never seen this happen, but let’s suppose it did. If a customer did actually admit online that they have not paid you, what sorts of new customers would be discouraged from such a posting – those looking to avoid paying their bills?

I once had a dentist tell me that he did not want to send patients to a collection agency because he did not want to be known as, “that dentist that sends patients to collections.” A few years later, he came to back and hired us, because he had $50,000 in bad debt and could not pay his bills. To avoid being seen a a bad guy, he had become the dentist no one paid – literally. One non-paying patient referred another, and so on.

Bad Reason: Do not hire a collection agency and just write off the debt.

Many small businesses utilize cash accounting and gain no tax benefit from writing off bad debt. Even larger businesses that can write off bad debt must show an effort to collect it before they write it off and often do not receive much tax benefit. A bird in hand….

BEST REASON: You should hire a collection agency to get paid. Period. End of story.

There is an old saying that the best revenge is living well. I don t believe it should ever be about revenge, but in this case, your best outcome (or revenge, if you must) is getting paid. What actions your collection agency takes to contact your customer and convince them to pay should be your only consideration.

 

Collection Agency: Are You Waiting Too Long?

Posted by Marilyn Miller on January 11, 2019  /   Posted in Uncategorized

A collection agency partners with your business to recover money owed to you. Much of the time, they are working on your files without being paid first. Their time and effort on your files is their investment in you and your business.  The more you assist and communicate with your agency, the greater your chances of success.

One of the best ways to improve your collection agency results is to make certain you are not holding onto your accounts too long.

It seems counter-intuitive, I know, because you should attempt to recover on your own. The trick is not waiting too long to send file to your collection agency. If you wait too long, you may be sabotaging your ability to get paid.

How long is too long?

Only you can decide when it is time to hire a collection agency. However, if you have gone 90 days with no payment and no contact, there is no reason to delay.

What happens when you wait too long?

Too much delay is like gambling with your accounts receivables. Here are some issues that can develop:

1.  The delinquent customer could move out of state. This would not make it impossible to collect but it will likely make it more difficult.

2. The delinquent customer could sell an asset that you might have been able to attach for payment later on.

3. A business customer could go out of business.

4. Your customer could incur more debt, be less able to pay you, or even declare bankruptcy.

5. Other more proactive creditor could take legal action and place liens on their property, wages, etc. You would then be behind those.

6. You could incur a higher contingency collection fee. Higher fees for older accounts (over a year, or in some cases, over 180 days) are common, because older debts are more difficult to collect.

I just received a dozen accounts from a client, a contractor who told me six months ago he wanted to send the files to me. At the time, the files were already 60 days late, and the customers were ignoring him. He wanted to wait because he did not want to “pay our fee.” So, now after nearly a year, we are working on the files. The first file, a small for a small business, is not collectible because the business is gone. It was collectible six months ago, but not now. So, to save a small fee, the client now has nothing to show for it. Something is better than nothing, remember that. Do not be penny wise and pound foolish

It is smart to jump on your accounts receivable, take immediate action once they begin to age and keep consistently monitoring. It is not smart to do nothing, either because you are not giving your accounts receivable the attention they deserve, or if you are hoping that delinquent customers are magically going to pay you. 

 

 

 

 

Bankruptcy: Can You Still Get Paid?

Posted by Marilyn Miller on January 07, 2019  /   Posted in Uncategorized

Bankruptcy protections were created to give people who have incurred debts greater than their assets or ability to pay. It is intended to make way for a “fresh” debt-free start. However, there is nothing more frustrating to a small business owner than having to walk away from money owed to them when a customer declares bankruptcy.

There are several different kinds of bankruptcy.

Generally they fall into two categories – those that discharge, or eliminate debts and those that restructure, or set up payment plans. There are also different types for individuals vs. business.

Once you are made aware that a customer (whether a company or an individual consumer) has filed for bankruptcy, you must not contact them directly as long as the case is active.

If you have placed their file for collection agency, you must let them know immediately and they too, must cease contact directly with the debtor. No contact means no contact – no bills, no phone calls, no letters.  If the debtor is represented by an attorney, you may make contact with the attorney. You can also file a proof of claim with the court, and you will get notifications as the case progresses.

Your chances  of bad debt recovery depends on many factors, and there are some important things to keep in mind.
  1. If your customer is a business, do you have a personal guarantee, which means that the customer will personally guarantee debts of the company? If you do,  and the company declares bankruptcy, you may still have the right to pursue the personal guarantor.
  2. If you believe that there are assets that have not been disclosed, or believe for some reason that your debt should be exempted from discharge, you should attend the hearing, and you will have an opportunity to state your claim question the debtor.
  3. The debtor has responsibilities while in bankruptcy. If they do not perform their duties, their case may be dismissed. If so, you are free to pursue the debt again.
  4. If the debtor files a repayment plan for debts that is approved by the court, notify the court if the payments are not made according to the plan.
  5. If the debt is discharged, it means that the debt is wiped out, and you cannot recover it. Move on.

Things happen to people and businesses and you cannot foresee every situation, but if you are watching the aging of your receivables, look for signs of trouble and suspend credit, reach out to the debtor to see if you can work out a solution.

Small Business Credit: When a Good Customer Goes Bad

Posted by Marilyn Miller on January 04, 2019  /   Posted in Uncategorized

The other day I received a call from a small business client regarding a two year old debt for $ 2,000 from one of their best customers. They had worked with this client, another small business, for nearly 20 years and had enjoyed a tremendous mutually beneficial relationship until the customer started paying their invoices later and later, and then stopped paying altogether.

Due to their longstanding relationship, our client agreed to give their customer some time. They sent the customer their standard invoice for two years, with no response. They did not want to call, because they did not want to “upset” them. After two years, an invoice came back from the post office and when the owner finally placed a call the number was out of service. The business was gone, and since there was no personal guarantee in place, chances of getting paid on the bill were gone too.
So, how do you tell the difference between a customer in a temporary cash crunch from one who is about to “go bad”, i.e, go out of business or bankrupt and leave you unpaid and unable to collect anything?


The most important factor is communication.

The client in the example above told us that his customer had always been a slow-paying but had never gone more than 60 days past due, and had always placed new orders. However, the delinquencies went to 90, then 120, and more, and there were no new orders.

Watch for signs of trouble


Sadly his longtime customer did not communicate the true extent of his financial difficulties, but also our client missed some red flags that should have triggered action on his part. Simply sending invoices is not enough. After a few months with no response, a collection letter or phone call might have made a difference. When the new orders stopped, it should have been cause for concern.
If a client stays in touch with you and keeps you posted on their progress, then it is a different story, and perhaps you can float them a while longer. But consider the following:
• Get payment of a reduced amount. Keep customers in the good habit of paying you something.
• Offer a discount for payment of reduced amount. Make it a limited time offer and be sure to document.
• Watch and listen for signs that the company is in trouble. (No new orders, rumors of layoffs or other creditors they are not paying)
• Offer payment plans. Again, document.
• Consider hiring a collection agency. Find an agency that will work with you and have a softer debt collection approach for customers you would continue to do business with once their bills.
• Set a limit as to how much new credit, if any, that you will extend to a customer with an outstanding balance.


Know when it is time to terminate a relationship, as painful as that might be.

Be compassionate and understanding with delinquent customers to a point, but remember to look out for your own interests first. Remember the line from one of my favorite movies, Cinderella Man. I’ll paraphrase, as the original is a little indelicate: Business man Jimmy Johnston, played by the wonderful Paul Giamatti is asked to “have a heart” and give a down-and-out a fighter a chance. Johnston replies, “My heart is for my family, my brain…is for my business”


So keep in touch with all customers, and keep them doing good things, and know when enough is enough.


Have you ever had a really good customer tell you that they are going through a rough time and cannot pay you? How did you resolve the issue? We would love to hear about it.
Looking to hire a collection agency but not sure where to start? We can help!

Know Your Customers and How They Pay

Posted by Marilyn Miller on January 02, 2019  /   Posted in Uncategorized

Customer credit is a great way to increase sales. If you are smart about how you grant your customers credit, you will be ahead of your competition. However, if you do not have a plan or if you have a plan and do not follow it diligently, your cash flow will suffer.

 
First and foremost, you need a contract with your customers.

Even an informal agreement such as an email with customer agreeing to your payment terms is better than nothing. If your customer is a business, a personal guarantee is important.

So how do you decide how to grant credit: to whom, how much, and for how long?

It is  important to understand your customers, and how they pay.

There are 5 kinds of “payers”.
  • Prompt and Regular – You never worry about payments. They pay on time. They deserve the most credit at the best terms.
  • Slow but Steady – Usually long term customers who you count on for regular orders who have always paid, just slowly. They are usually 30-60 days behind, but are a good source of business. Grant them credit, but watch your outstanding balance. Set a maximum outstanding balance. Offer discounts for prompt payments. If they go beyond 90 days, get on the phone and speak to them.
  • First Round Collection – These customers, when sent to a collection agency or attorney, pay voluntarily. They want to get back into your good graces. They need your product or service. Customers with seasonal needs often fall into this category. A fuel oil dealer client of ours saw a big rush of payments after the first frost. Require these clients clear up any old balance before you extend any more credit.  After payment, require a deposit or convert them to a cash basis.
  • Legal Collections – These collection clients will not pay without a legal action. Some will pay when they are sued. For other customers, you will have to obtain a court judgment against them, and then perhaps they will get religion and pay. For still others, you may have to resort to property liens, wage garnishments or other extreme measures. It should go without saying, but these customers should not only not have any credit with you, but should not be customers at all.
  • Never Going to Pay – Customers who go out of business, have no assets to attach, or who file bankruptcy are almost always a lost cause. Look to see if there is any possibility to recover, but be prepared to walk away.

Customers may move from one group to another, and hopefully you are watching the aging of your receivables and will take the appropriate actions.

Customer credit is a privilege, not a right. Watch your customers, how they pay (or don’t pay), and cash flow will take care of itself.

Small Business Credit: Best Resolutions for 2019

Posted by Marilyn Miller on December 31, 2018  /   Posted in Uncategorized

Small business credit practices are often an afterthought. I have lost track of the number of times I have heard a client say, “I know I should have….but I didn’t’, and now they have not paid me.”

My standing New Year’s Resolution, designed to be something I can attain, but also a resolution that pushes me to improve is:

Keep in mind the things that worked last year, and do those things more often, while all the time asking, “Is there a better way to do this?”

You are already doing a number of things right. Look at what worked for you in 2018, and keep doing those things. At the same time, resolve to take some simple steps to strengthen your small business credit practices.

Gather and Update Customer Information

Every contact with a customer is an opportunity to collect and update information that may be helpful to you. These days, people move often, so make sure to update address, phone number and email every time you speak with a customer. Do you have current insurance information? A valid credit card? You will not know until you ask.

Remember the 3D’s: Deposits, Dunning and Documentation

Whenever you can, collect a deposit when you extend credit to a customer. Customer with “skin in the game” are more likely to respect the credit arrangement. At very least, require a current credit card on file. Many people pay their household bills with automatic withdrawals. Payments to you should be no different.

Dunning, or billing your customers on a regular basis, seems like a simple task, but it is one that is often poorly executed. Bills must be sent promptly and regularly. They must be legible and easy to understand. They must provide information on how to pay, and who to call with billing questions. This is an easy one!

Proper documentation of all credit transactions, including documentation of the terms of any payment plans is a must. Memories fail us, and details not documented may be lost forever.

A customer contract is your best friend. Use a written contract for every credit customer.

Oral contracts are legal in most states, including Maine. However, once again, if you do not put terms in writing, you leave yourself open to interpretation. In a payment dispute, your customer may remember things differently than you do. Your contract must include how much to pay, when to pay,  and the consequences of non-payment. No time for a detailed contract? Send basic details in an email to your customer, and ask them to email back their confirmation. Voila, a simple contract.

Remember, you can take the time beforehand to document your terms or you can argue with your customers afterward.

Stay on top of your accounts receivable, have a plan to follow up on accounts and stick with the plan.

A consistent process of review and action will make all the difference with your accounts receivable. It will boost your cash flow and reduce the number of files you will need to send for outside collections. Involve key staff. Make it fun, or at least take the dread out of the process by coaching your staff on how to talk to customers about a debt. Use a well-written debt collection letter to follow up.  

Managing your small business credit practices is not rocket science. It takes commitment and consistent effort. So, for 2019 resolve to keep doing all the great things that made you successful last year, plus a little more.

United Obligations wishes you a happy, healthy and prosperous New Year!

 

 

 

 

 

Debt Collection Costs: How to Control Them

Posted by Marilyn Miller on December 27, 2018  /   Posted in Uncategorized

Debt collection costs – who doesn’t hate them? I get it. You don’t get paid and have to pay someone to get your money for you. It stinks.

On the other hand, bad debt sitting on your books doesn’t do anything for you and your business. You can’t use it to grow your business or pay your employees. You have to convert those receivables into cash and to do that, you have to recover bad debt. With bad debt, something really is better than nothing.

How do you control your costs of collection? The first step is your own consistent effort to stay on top of the aging of your receivables. You must have a plan and procedure in place and you must stick to it. The better you get at your own in-house collection, the more you can keep the costs of debt collection to a minimum.

Even with the best efforts, some bad debts need to be referred for outside collection. If you have not collected the money in 90 days, you have to consider hiring a collection agency. The number one factor that drives up collection agency fees is the aging of the debt. Collection agency fees are higher for older debts. You are not doing yourself any favors hanging on debts, hoping your customers will pay you. In addition to higher fees, there are some hidden “soft costs of delay” Get help!

Debt collection costs are about more than the rate a collection agency charges. Do you have a customer contract? If you do, you may be able to charge interest and/or recover some or all of your collection costs.

So, the top three things you can do to lower your debt collection costs are:

  1. Recover as much as you can in-house using smart and consistent procedure.
  2. Don’t hold on to the debt too long.
  3. Maximize your recovery by adding contractual language to include interest and costs of collection.

How do you manage your debt collection costs? Let us know in the comments.

Bad Checks in Maine: A Small Business Primer

Posted by Marilyn Miller on December 21, 2018  /   Posted in Uncategorized

Some bad checks are a mistake, others are intentional. Basically, an unintentional error is considered a civil matter, and an intentional bad check issuance is considered a criminal offense. In either case, the person who issued the check is legally required to make good on the check, or face civil and/or criminal penalties.

Bad checks in Maine are very recoverable but it is important to know your rights and responsibility.

A bad check can be either a check issued that is returned for insufficient funds or a check written on a closed account.

Maine law is very specific about the process to recover a bad check. You must send a letter to the issuer using this specific language from Maine statute:

Your check, draft or order made payable to _____in the amount of  _____   has not been accepted for payment by _____which is the drawee bank designated on your check. The check is dated _____and it is numbered ________.

You are CAUTIONED that unless you pay the amount of this check within l0 days after the date this letter is postmarked, you may have to pay the following additional costs:

  1.   Attorney’s fees;
  2.   Service costs;
  3.   Processing charges;
  4.   Interest; and
  5.   A penalty not to exceed $150.

You are advised to make payment to the address on this letter. Payment must be for the full amount of the check and must be in cash or certified funds.

This language is mandatory. As you can see, if the checkis not paid after 10 days, you are entitled to various fees and costs. If you are not paid within the 10-day period, you can contact the authorities. Your local police department is a good place to start, although come cities and towns will refer the matter to the country sheriff. DO NOT be afraid to take this step. It does not necessarily mean that the person will be arrested. It may be just the incentive your customer needs to make good on the check.

Some other things to remember:

  1. Ask for repayment in certified funds.
  2. We recommend full payment only. If you take partial payment, you may void your ability to employ other civil and criminal penalties.
  3. If someone issues you a second bad check within a year, you may be entitled to additional funds, but you will have to go through a notification process again. However, we recommend you do not take a second check from someone who has bounced a check on you – certified funds only. Fool me once…
  4. If you do get the authorities involved, stay in close contact with them and notify them immediately if you get paid. This is very important, especially if the police would be pursuing criminal charges.
  5. Your customer contract should address bounced checks and let them know that you will pursue all lawful remedies available to you.
  6. Make sure you take contact information from anyone issuing you a check.
  7. If a check looks funny to you, ask the customer to wait while you call the bank to check.
  8. Do not take second or third party checks.
  9. If you decide to hire a collection agency to help you collect the check, provide them with copies of the bad check (both sides) and your correspondence.

There are check clearing services you can purchase, but they may be expensive. Your best bet is to have a clear and consistent policy for both accepting checks and for handling bad checks, and to make sure that you communicate it to your employees and your customers alike.

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