Debt Collection and the Impact of a Customer Contract

Posted by Marilyn Miller on February 25, 2019  /   Posted in Uncategorized

Debt collection is greatly enhanced when there is a written agreement to verify how the debt came into existence. Similarly, our ability to get the best results can also be hindered in the absence of a contract.


Here are some real life examples of recent collections, with names changed to protect the innocent (and the guilty!).

Oral contracts are open to interpretation.

Oral contracts are valid in Maine and in many states, but when there is a dispute, a “handshake agreement” quickly becomes a “put up your dukes” situation.

I have a file on my desk between two tradesmen who have a long history of doing business together and actually are (or were) friends. They each have a story about why the money is or is not owed. My guy claims he is owed $ 700.00. while his buddy claims the same sum is due, referring to an oral contract between the two parties. The two sides of the dispute are diametrically opposed, causing a great deal of angst and no resolution in sight.

The “he said, he said” problem is 100% avoidable. Get it in writing!

Stop giving interest free loans!

My client placed a substantial year-old debt with me for collection. She had been adding interest and late fees after the debt was 30 days past due. She was not happy when I told her that without a contract, she could not legally charge interest unless the customer had agreed in advance. Had my customer had taken a few minutes to send an email to her new customer with payment terms, including interest on late balances, and asked to email back consent, we would have a simple contract and be legally able to add interest.

You cannot simply advise on your after-the-fact invoice that you are charging interest, as many believe they can. Why? The customer could argue, correctly that they never agreed to the finance charges.

Think about your mortgage, your car loan or credit card documents. A bank never provides interest free loans. Why should you?

Getting “personal” can save the day.

We were asked to collect a debt in excess of $ 50,000 from a company that had not paid our software developer royalties. When we approached the debtor company, their first defense was to tell us that the company had been dissolved, and had no assets. We found this information be to be true, but also discovered that our client had the forethought to obtain a personal guarantee from the business owner.

A personal guarantee means that the business owner pledges personal assets in case the business is unable to pay. We were able to take an action against the business owner, who owned two homes, and a good income. We were only able to take this action because we had the personal guarantee – without it, we would have been stuck.

Taking the time before a transaction to communicate your payment terms contractually may mean a little effort on your part, but could make a big difference down the road.




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