Bad Checks in Maine: A Small Business Primer

Posted by Marilyn Miller on June 25, 2020  /   Posted in Uncategorized

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

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.

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 check goes unpaid 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.

How Long Can You Collect a Debt in Maine?

Posted by Marilyn Miller on June 10, 2020  /   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. The statute of limitations in Maine begins 6 years from the date of service, or if payments have been made, the statute begins the date of the last regular payment. 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. 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.

Debt Collection Agency Fees: How They Work

Posted by Marilyn Miller on June 03, 2020  /   Posted in Uncategorized

Small business owners everywhere are looking to reduce costs and improve efficiency in their companies, and recover money owed to them.  Some business owners just write off their bad debt hoping receive favorable tax treatment, but this is a big mistake since most small businesses are on a cash accounting basis, and there is no tax benefit for bad debt write off.  The goal is recover as much money as you can at the lowest cost to you. But how do you do that?

Companies should definitely try to collect all they can themselves but waiting too long to pursue bad debt can also cause problems. After two or three collection letters, the file should be turned over to your collection agency.

The cost of a collection agency can vary. Collection agencies get paid in one of two ways: flat fee or contingency. Flat fee charges can work for some businesses, but usually only cover a certain time period, or cover limited services. For example, you pay 29.00 per file in advance and the collection agency sends one letter and makes a few phone calls. Per file fees debt collection fees are based on the hope that some files will pay quickly.

There are two issues with the flat fee approach to debt collection costs. First, is often only available to companies that send large numbers of files to collections monthly, such as a large medical group. Secondly, services that are part and parcel of the collection process are probably going to cost extra. Over half of accounts sent to collection need some type of research to find new phone numbers or addresses, and research will not be provided on a low fee file. So, while these rates are attractive at first glance, they may not be the best option for you, especially if you have already done some in-house collection.

The flat fee approach is fine for “low hanging fruit”, but you can usually collect those on your own. What happens to the tougher files? They are either parked on a credit report, where they will languish, or you will be asked for an additional fee for further collection activity.

The most common way collection agencies are paid is by contingency, which means that the collection agency gets paid no money upfront, and is compensated with a percentage of sums collected. The debt collect fees normally vary based on its “age” (how long outstanding). Contingency rates vary from 25% (or less) on debts that are under 90 days old to 50% (or more) on debts that are over a year old. Contingency rates should include the full range of collection services you need: research, credit reporting, legal fees.

One of the most effective ways to minimize your cost of collection agency is to use a solid customer contract that passes on some of the cost of collection. Many states allow some or all of the costs of collection to be passed on to the customer if (and only if) the customer agrees to it beforehand.

Small Claims Courts Are Closed. How to Get Paid Anyway

Posted by Marilyn Miller on June 01, 2020  /   Posted in Uncategorized

Courts in Maine and in many states continue to be closed due to Covid-19.  When they reopen, there will be a tremendous backlog.

If you have been using Small Claims Court to sue customers who owe you money, you will have to wait months to even begin the process. And remember, the Court simply awards a judgment that you have to collect yourself, which will mean even more delay.

The good news is that there are alternatives to Small Claims Court.

Settlement: If your customer admits to owing you but does not have the funds the entire balance, consider settling for a smaller amount. We recommend lump sum settlements whenever possible to avoid a drawn out string of payments.  A small discount can save time and infuse cash into your business.

Payment Plans: If cash flow is an issue for your customer, they will not be able to pay in a lump sum and a well structured and documented payment plan can be a good option. Require a deposit to begin the plan. Make sure the plan is in writing and signed by the customer.

Promissory Note: Perhaps your customer is going through a rough patch but is certain to have funds to pay you in the future. A promissory note is a written promise to pay you on a certain date. The note must be specific in terms of the amount of payment, method, date, finance charges and so forth.

Set up an in-house collection agency: You will be amazed how much money you will be able to bring in if you set up a system and use it consistently. Draft a series of collection letters of increasing urgency. Provide your staff with scripts for collection calls. Meet weekly to review progress.

Hire a collection agency. Find a collection agency that has experience working in your area and with businesses like yours.  Make sure the agency is compliant with state licensing requirements (if they exist) and check references. Provide a collection agency all information regarding the debt and the delinquent customer. Keep in touch with the agency during the process.

Not every debt or every customer is right for a Small Claims Action. Even after the Courts reopen, you may find these are better alternatives much of the time. The best way to get the Small Claims Court right is to realize that is only one tool in the debt collection toolbox. Have a strategy that includes a solid in-house collection effort, a relationship with a debt collection agency and a working knowledge of the  Small Claims Courts, and success is guaranteed.

 

 

 

When a Good Customer Goes Bad

Posted by Marilyn Miller on May 26, 2020  /   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.

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.

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. However, 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.

Credit and Collections: Habits to Develop Now and Keep Forever

Posted by Marilyn Miller on May 13, 2020  /   Posted in Uncategorized

My dad is 96 years old and lives alone. We speak several times a day. He is taking the Covid crisis seriously, and staying home. He’s making pasta, doing some planting, and watching a ton of old movies. He shares his memories of conditions during World War II, with rations, blackouts and the like, and reminds me how easy we have it, and how spoiled we are, complaining (as I am) that I cannot get a haircut.

My dad is an inspiration to me. He’s improvised with recipe ingredients, rearranged his schedule, and even learned to FaceTime and Zoom. 

We have all changed the way we work, the way we communicate, shop and well, live.

In our business lives, we have made many accommodations. We may find that we like the new ways of doing things, and make these changes permanent.

When it comes to the credit and collection practices in your business, how you communicate with customers and manage your accounts receivable probably look different these days. 

Some credit and collections practices should be ome long term habits. Consider:

Are you billing promptly? Get invoices to your customers as soon as you can. Even if your work is not finished, send an interim statement. 

Do your invoices clearly indicate the due date of the payment, and how payment can be made?  

Do you offer “no touch” or online payment options?

Have you adjusted payment plans to fit the needs of your customers?

How about rewarding  your very best customers with the most favorable payment terms?

Do you have a plan for regular review and management  of your accounts receivable?

Do you use written contracts to document customer credit arrangements?

Change is good, and good change is great. Take a look at what you are doing, what is working, and make the changes part of your permanent credit and collections program. 

 

 

 

Judgments, Liens and Debt Collection: Are They Effective?

Posted by Marilyn Miller on May 11, 2020  /   Posted in Uncategorized

Debt collection is my business. I help small business owners when they do not get paid. I like to think that I also assist my customers with their credit practices. Truth be told, the better job they do, the easier my job can be.

Still, I continue to hear the same questions about debt collection and small business credit practices. So, I thought I would list them one more time.

One question I am often asked is, “Can’t you just lien their home?”

Answer: A lien is a record placed against a piece of property that can prohibit the sale of said property until the lien is released. In most cases, it means that the underlying debt gets paid. So it would make sense to put a lien on someone’s home to make sure you get paid, right?

It depends. 

You cannot file a lien against a piece of property unless you have a legal right to do so. 

Most of time when my clients ask this question, they are not referring to a mechanics lien, which can be placed on a property when the contractor does not get paid. They are only valid for a limited time, usually 90-120 days, depending on the state. To keep this type of lien in place, you would file a court action and obtain a court judgment. And again, this type of lien applies only to contracting work – repair or improvements to fixed property.

A judgment is a decision by a judge in a court of law. If you obtain a judgment in your favorite, then you have the right to file a judgment lien against a piece of real estate. The lien stays on the property until you release it. So, sit back and relax and one of these days, you will get a phone call from the property owner (your debtor), who will pay you in full in exchange for a release of lien, right?

Well, probably.

As I write this, most court systems are closed. Your best bet is to keep trying to settle the matter without litigation, at least for the immediate future.

 

Once courts do open, be smart about any litigation. Do some research before you file. Make sure that the person you are suing actually owns the property. Determine, as best as you can, if there is enough equity, or value after mortgage or any other liens, to pay your debt.  Make certain that the property is not in foreclosure. 

So while judgment liens can be a great way to secure and collect money owed to you, you have to make sure you use them in the right way, and in the right circumstances. 

Debt Collectors: What to Do When They Call

Posted by Marilyn Miller on May 06, 2020  /   Posted in Uncategorized

I have been a debt collector for many years. My clients are not big banks or credit card companies. My clients are small business owners. When small business owners do not get paid, it impacts them immediately. They cannot pay their bills, or feed their family. I am passionate about the right of my customers to be paid, and I am proud to be their advocate.

My job is to walk the line between the creditor and the debtor: to negotiate and come to an arrangement that works for all parties, while all the time remembering that my number one goal is to get my client paid. Most people want to do the right thing, and they want to pay what they owe, but life gets in the way. Others may just need more information or have a valid dispute.

Every single one of my customers performed their service or delivered their product expecting to be paid for it. Just imagine if your boss told you at the start of the work day that you were not going to be paid. If you are unable to pay, speak to your creditor, and you can perhaps avoid having your file sent to a collection agency.

 If you are contacted by a debt collector, here is some advice.
  • You have the right to be treated fairly and respectfully. Consumer (business to consumer) debt collection is governed by the Fair Debt Collection Practices Act (FDCPA). Debt collectors must provide verification of the debt they are attempting to collect if you ask for it. They must not be abusive or deceptive. The FDCPA is a protection against abuse. Although some “Stop Debt Collector” ads may lead one to think otherwise, it is NOT a way to get out of paying a debt. Even if you successfully evade the debt collector, a valid debt does not go away unless it is out of statute or discharged in bankruptcy. Commercial (business to business) debt collection is not as highly regulated, but still commercial debt collectors cannot break the law.
  • While there are certainly bad players out there, there are also many good reputable collection agencies who recover money for businesses and help the economy. Each state has different license requirements. Check with your state, or do not be afraid to call your creditor to make sure the collection agency is on the level.
  • If the agency checks out, do not ignore them. If you do not wish to speak on the phone, respond in writing. Ignoring a debt does not make it go away.
  • A debt collector’s job is to get a debt paid. If you do not wish to pay the agency, pay the creditor directly, but let the agency know you have done it so that you get credit for the payment.
  • If a debt collector is calling your number and looking for someone else, contact them and let them know that they have the wrong number. People change phone numbers often these days. If you do not let the collection agency know, they have no way of knowing they have the wrong person.
  • Remember that the debt collector did not cause the debt and that they too, are in a tough spot. If you are treated with respect, be respectful in return, you may find you can reach a settlement with the least amount of stress.
  • Come up with a plan to pay off the debt, to the best of your ability, and communicate it. Be reasonable and do not over-commit. In the same vein,  suggest as much as you can so that you can get the debt paid as quickly as possible.

Collection Agency: Is Your Rate Really Competitive?

Posted by Marilyn Miller on May 05, 2020  /   Posted in Uncategorized

As the owner of a small business debt collection agency, I often get calls from prospective clients who are only interested in our rate and do not want any other information. It is frustrating to me because I believe that each client is different and the same rate should not always apply.

Like any business, a collection agency is started to make money. If your collection agency charges a rate that makes no profit, they will not be able to continue in business.

You get what you pay for.

A contingent debt collection rate means that no money is paid upfront and the agency is compensated with a percentage of monies recovered. Rates can vary based on many factors: the aging of the debt, volume of accounts placed, or size of the file placed. The contingency fee (i.e, no fee until money is collected) should support the amount of activity that will be needed to recover the money owed. While we all certainly want to manage the overall cost of collection, a low rate is not always what it appears to be.

Years ago a prospective client, a dentist, told us that he had over 200 delinquent patient accounts and had made an arrangement with an agency that gave him a very low rate. After 18 months, the agency had recovered only $1,200 for him and told him that in order to proceed to “Stage 2 Collections”, a high rate would be needed.  The low “teaser” rate did include credit reporting but little else. We took over the account and recovered thousands of dollars for him, a rate that made sense for us, and also gave him a much better return.

All contingency rates offered by collection agencies are not the same.

Some rates are all inclusive, while others provide very basic services and add charges for activities that are essential for successful recovery. So, the low rate is not really low at all.  For example, I once reviewed an collection agency agreement for a customer. His “low” rate did not apply to any file under $250.00 or any file that needed research (40-50% of collection files do). Legal fees were also not included in the rate.  The “great rate” applied to less than 30%  of his files. Never pay additional fees for research. It is part of what a debt collector does to get the job done, and should be included in the rate.

A contingent collection agency rate should require no upfront expense.

The collection agency is has an incentive to work hard to recover bad debt as they receive no compensation at all if unsuccessful. The contingency fee should be structured to include all services necessary to get the job done.

Do not assume that a contingent rate means that collection agency services are free.

One advantage to using a collection agency is the fact that a creditor does not have out of pocket expenses. If a collection agency fails to collect a debt, you should owe them nothing. However, your collection agency is taking a risk when they agree to collect for you. They believe that the debts you are submitting can be collected. You want a long term relationship with your agency, so handle it with care, and work with them to get the best results with your agency.

When I hear a potential client tell me they have many accounts for collection, but are only going to send me a few to “see how I do”, I immediately lose interest. I know that client is sending me the worst files, and that I am being set up to fail. There are only so many hours in a day, and choose to work only for serious clients.

There are many collection agencies to choose from, and finding an attractive contingent rate should be easy. If you are lucky to land a very low rate, watch to make sure you are getting the very best results from your collection agency. A low rate means nothing if the agency does not recover your money.

A Winning A/R Strategy: It Shouldn’t Take a Crisis

Posted by Marilyn Miller on April 30, 2020  /   Posted in Uncategorized

Last year, I helped a physician close his practice. He did not close because he could not attract patients. He did not close because he did not get results for his patients. He had a very large and loyal patient base who were devastated when he announced his closing.

The doctor closed his practice because he was losing money. He was losing money because no one was billing the balances after insurance.

He told me, “I was working so hard but not making any money. My “sales” numbers – new patients – looked great. I did not realize that we were not collecting money until it was too late.”

Another small medical practice was forced to close his practice due to an injury. When he met with a business broker to value his business, he was “shocked” to learn that he was owed $300,000. Much of the debt went back far beyond the legal statute of limitations, and was lost to him forever. He hired us and we recovered quite a bit for him, but it was a fraction of what he would have seen had he had an accounts receivable management program in place. 

Accounts receivable management is not rocket science.  You need only a plan and commitment to it.

The first thing you need is an aging report. An aging report shows how much you are owed, and how long you have been owed it. The aging report becomes your A/R map. Follow it. Live by it.

 

Devise a process to review monthly (at least!) and address each again receivable.

Put a team together and designate one person to  drive the process and make sure it stays on track. If you are an sole proprietor, it will all be on you, but if you are lucky to have a team to help you, use that help.

Decide the action you will take at each aging milestone.

For example, send a “friendly reminder” letter to customers who are 30 days past due. However, at 45 or 60 days, you need to escalate the process which could mean a less friendly letter or a phone call.

Determine your limits and stick to them.   

At some point around 90-120 days out, for  customers that ignore your efforts, another escalation – a Small Claims suit or referral to a collection agency is in order. Too many businesses send bills for months or years, and wonder why people are not paying them.

Do not wait for a crisis to force you to face an accounts receivable nightmare. Give accounts receivable management the same importance you give to sales, customer service, and any other part of you business.

 

 

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