How to collect money owed?
June 29, 2009 5:21 PM   Subscribe

I own a small tech business and have a few accounts that simply will not pay. The amounts owed range from $500 to $5000. I've tried turning the accounts over to collection agencies, but they don't understand tech so they have ignored the delinquent accounts. Any suggestions on how best to get paid, even partial payment or at least tell me how to file a "charge off".
posted by r80o to Work & Money (24 answers total) 1 user marked this as a favorite
Small claims court.
posted by kimdog at 5:21 PM on June 29, 2009

To clarify, are these business customers that aren't paying or individual consumers? I presume you've taken the obvious step of not doing additional work for clients with past-due balances.
posted by zachlipton at 5:28 PM on June 29, 2009

You could try this:
posted by starvingartist at 5:33 PM on June 29, 2009

Response by poster: @kimdog: Good point, but the if they lawyer up (which two of the larger accounts will) it will send the case automatically to Superior Court. We can't afford the legal fees.

@zachlipton: Businesses, and yep we no longer do business with them. As a matter of fact, we have now stop projects in mid-workflow if the receivables go past 15 days.

@starvingartist: THAT is cool. I'll look further into it. Thanks for the link!
posted by r80o at 5:50 PM on June 29, 2009

I've tried turning the accounts over to collection agencies, but they don't understand tech so they have ignored the delinquent accounts.

What does that mean? What do they care what the debt is for?
posted by smackfu at 5:52 PM on June 29, 2009

they don't understand tech so they have ignored the delinquent accounts

Can you go into more detail here? This has not been my experience with collections agencies; they generally don't care at all about why the money is owed to you, so long as you can prove that it is owed to you. Perhaps you need to try a different agency.
posted by ook at 5:55 PM on June 29, 2009

r80o, if the amount is less than $5000 than you should be able to take it to small claims in most US jurisdictions. There is no "lawyering up" in small claims court.

I'd like to hear more details, even though IANAL and IANYL.
posted by infinitewindow at 5:59 PM on June 29, 2009 [2 favorites]

Do you have written contracts with these clients? Surely your contract says that, if you prevail in a legal action to collect the balance, they will have to pay your legal fee. Do you have that term in your contract?

Generally such a provision discourages even deep-pocketed defendant from fighting the claim in court.
posted by jayder at 5:59 PM on June 29, 2009

Response by poster: We've been told by the credit agencies that they don't know how to collect on the debt. Their "collectors" don't understand our terminology (things like "server maintenance" and "web development") leave them lost when they place a call and the (ex)client starts giving them grief. We were told by one agency that our accounts have been back-burnered because it's "not their usual" credit card or medical collections routine. The agency we're with now won't return emails or phone calls when I ask for an update.

We have a very "tight" letter of agreement that clients sign before we get started. We have the legal venue set local. We were told that the "client pays all legal fees" in all likelihood "...won't fly..." if the cases ever go to Superior Court by the attorney who drafted our agreement.

Our attorney have also told us that if we go to small claims court (in GA) and either party brings a lawyer, the case automatically gets bound over to Superior Court.

As far as proof, we document EVERYTHING, online using Basecamp. Times, dates, phone calls, emails, voicemails in MP3, all correspondences are held in its respective project area. We now even [audio] record client sessions (with their knowledge) with LiveScribe pens. We cross every "t" and dot every "i" because the write-offs are getting out of hand.

The upside, we've reworked a good bit of our Letter of Agreement (the contract) and our write-offs have all but ended, except today I've had a (ex)client send me a letter (through their attorney) saying they're going to sue if we send their $800 past due to collections.

Suing over $800! It just doesn't make sense.
posted by r80o at 6:25 PM on June 29, 2009

Are they just not paying, or are they refusing to pay because of what they perceive as bad service from you? I ask because if they have any legitimacy to their gripes, the collection issue becomes much more complex.

Have you tried to negotiate smaller payments, or payments over time? If you offer to take only 2/3 or half, they may be more likely to pay. Most people aren't cheats; they are just deadbeats that do want to pay their bills, but have a real easy time ignoring them. If they run businesses, then they understand that they have to honor their bills. So maybe letting them know that you'll "deal" with them will help them return your calls. You can always ask them "What do you think is a fair amount to pay?" then negotiate from there.

Some money is better than none.

As far as I can tell, you have 2 other options, both of which end up in court: (1) interview new collection agencies, and ask if they have experience collecting on tech debts; or (2) write letters threatening to sue if they don't pay.

Actually, you have another option: consider that you may just have to eat the losses.
posted by jabberjaw at 7:18 PM on June 29, 2009

Small claims court is for petty sums, where the lawyer costs exceed the value of the claim. It makes an amount of sense to not even show up, since you'd incur more expenses. In contrast, a letter saying they'll sue costs somewhere between the cost of a stamp and the letter it contains and the five minutes for a legal assistant to type it up and council to approve it.

If they lawyer up in court, you can always drop the case. They've made clear their position, you might as well see if they will actually follow through.
posted by pwnguin at 7:18 PM on June 29, 2009

Your attorney is wrong. Georgia small claims rules state that a lawyer is optional in small claims and not required. If the other guy wants to waste his money on a lawyer that's up to him, but it sounds like you have plenty of documentation, which is what small claims are decided on. Also, judgments are a matter of public record, so they will likely fold once served with papers.
posted by rhizome at 7:19 PM on June 29, 2009

Call me Pollyanna, but in this economy..... have you tried calling and negotiating directly with these clients, reducing the debt, asking if they can offer something in trade, barter, etc.?

can't hurt to try...
posted by rexruff at 7:23 PM on June 29, 2009

And to be sure, this is likely feast time for collection agencies, so it's no surprise you're having trouble getting one to return your calls. It just so happens that small claims is a way to enforce your own collections. I don't know what's involved in becoming a company that can ding a client's credit rating, but if you can't become one you could start looking for someone who can (besides collections).
posted by rhizome at 7:29 PM on June 29, 2009

What about negotiating a payment plan?
posted by radioamy at 7:29 PM on June 29, 2009

I'd pursue small claims. If they (depending on the specifics of your jurisdiction) appeal it, then you may be able to represent yourself. (Some of that depends on whether it's YOU suing or YOUR CORPORATION suing them, if you are incorporated. In the latter case, you might actually have to be a lawyer.)

Some remedies available after getting a small claims judgment in your favor include directly removing funds from their bank accounts (I had this done in Tennessee once), filing a workman's lien (I threatened this once in North Carolina), or encumbering some valued real property in some manner until the debt is satisfied.

Your use of terminology suggests to me that you are not in the USA? However, if you are, investing a few hundred dollars in decent legal consulting to determine your avenues of action seems like a good idea. I can't imagine if you have indicated who is responsible for legal expenses and if you have such a pile of deadbeats that you wouldn't be able to find a lawyer to take on some of this speculatively. One of the risks of non-payment is that the deadbeat might have to pay some serious legal and collection fees.

Above all, don't drop it without a thorough cost/benefit analysis of the specific account.

Beyond that, quit recruiting bad clients. Something you are doing seems to need a different approach. Qualify your clients. Have questionable ones pre-pay or use a deposit-with-order-and-bill-on-milestones approach. Direct debit. Try something different.
posted by FauxScot at 7:50 PM on June 29, 2009 [1 favorite]

Get a second legal opinion from another attorney. I am still not a/your lawyer, but the one you currently have sounds incompetent or otherwise compromised.

I have never heard of someone successfully suing because a vendor sent their account to collections. I have heard of plenty of vendors suing and winning deadbeat clients, though. Your problem clients are making threats they can't back up when you are clearly in the right. Don't roll over. Keep us informed. This Is Not Legal Advice.
posted by infinitewindow at 10:34 PM on June 29, 2009

If they're nearby, turning up in person might help shame one or two into paying up. Obviously you need to stop short of stalking/harassment, and it's a burden on your time, but if you pop in regularly they might pay to get rid of you (this worked for one person I knew, who went in every day for a week, was charming and polite with the receptionist, and willing to wait indefinitely when the relevant people were 'in a meeting').
posted by malevolent at 2:20 AM on June 30, 2009

Just chiming in (as another non-lawyer). Don't ever cave to a threatening letter like that. The fact that they sent you that threat to sue if you turn them over to collections means they've given away their hand. If they can't pay the $800, they certainly can't afford the legal fees to sue you over it. Plus, there's no way they'd ever win such a suit.

Small claims is a really great weapon for this stuff. And, if necessary, you can always represent yourself, probably even if the matter goes to Superior Court. Consider that your lawyer may not want you to go the small claims route, because he doesn't get any money that way.
posted by Citrus at 6:34 AM on June 30, 2009

Response by poster: Thanks for all the advice.

I'm in the US (Georgia) by the way.

I've tried: negotiating, extended payments, reducing the amount, phone calls, face to face, letters, and finally collections. I've not tried small claims court.

These folks simply will not pay. If they expressed hardship or would be at least willing to work with us, I would bend over backwards to work with them. God knows, I've been there before.
But it has nothing to do with "can't pay" it's a matter of "won't pay".

Their reasons range from "...we never intended to pay you." to "...sue us." to "...we wont pay until we see our website--complete."

Like I said earlier, we've changed the way we do business now. We get [a significant] partial payment up front. That's been a great pre-qualifier against those who were never going to pay anyway.

With the exception of the person threatening to sue over $800 [yesterday] these other past due receivables are well over six months old.
posted by r80o at 6:38 AM on June 30, 2009

How often do you contact them?

I ask because someone I know works supply & service side of the restaurant industry in GA- an industry notorious for not paying their bills. His single best and most cost effective tactic for collecting is to simply call them time and time again. Daily. 2x daily. Etc. The key is he's relentless and doesn't stop. He even does it as a side job now for service companies around the area. Eventually, he annoys them enough, "Are you ever going to stop calling?" "No." "Fine, here's the money!" And this is in cases where collections didn't work either. You'll need a tough skin though...people on the other end aren't always verbally so nice.
posted by jmd82 at 6:50 AM on June 30, 2009

I like the consistency angle - simply calling for a 'friendly reminder' asking when the money will be sent two, three, four times a day... This goes great with any business that really needs to answer their phones as they are.

"...we never intended to pay you."?? So they used your services then never intended to pay you? Small claims court, placing collection notices on fun stuff like their computers, desks, and phones. They might think twice when their ability to do business is jeopardized. BTW, is it in your contract to add interest / late charges? Those add up over time, especially over six months.

As for the guy willing to sue over $800, it sounds like BS. If a customer is withholding payment for some legitimate reason (the contract states a complete website must be made before payment is made, etc.), they're in a stronger position. Take it to court - a well-reasoned argument (and a second look at the contract) might convince a judge that you've been wronged.
posted by chrisinseoul at 7:49 AM on June 30, 2009

I like the consistency angle - simply calling for a 'friendly reminder' asking when the money will be sent two, three, four times a day.

This sounds like bad advice. In my day to day life, I'd call that harassment...
posted by pwnguin at 1:58 PM on July 1, 2009

This sounds like bad advice. In my day to day life, I'd call that harassment...

In my state, I think there is an exception to the harassment statute which exempts activities that are to collect a legitimate debt.
posted by jayder at 7:55 PM on July 1, 2009

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