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The Art of Always Getting Paid And in some cases The Science of Sometimes Not Getting Paid… Which is it…An Art or a Science Business Collections Copyright.

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Presentation on theme: "The Art of Always Getting Paid And in some cases The Science of Sometimes Not Getting Paid… Which is it…An Art or a Science Business Collections Copyright."— Presentation transcript:

1 The Art of Always Getting Paid And in some cases The Science of Sometimes Not Getting Paid… Which is it…An Art or a Science Business Collections Copyright 2011, The Collection Law Group, Inc.

2 Brad R. Magill, Esq. Managing Partner, The Collection Law Group, Inc. Who is The Collection Law Group, Inc. How did I get where I am today Introduction Introduction Copyright 2011, The Collection Law Group, Inc.

3 What we will Cover Focus of my discussion for next EIGHT hours… Internal collection efforts External collection topics Relevancy of course to CPA firms and their clients Copyright 2011, The Collection Law Group, Inc.

4 Why Credit And Collections Are So Important In This Economy SBA Statistics Copyright 2011, The Collection Law Group, Inc.

5 Source: Small Business Administration There are about 27 Million businesses in the US Almost 700,000 businesses closed last year About 60,000 businesses filed for bankruptcy last year Thirty percent of new businesses fail within first two years Fifty percent of new businesses fail within five years There are about 15,000 public companies There are about 10,000 companies that share A/R information Companies are here today and gone tomorrow With the above statistics is no a wonder that companies today have a very difficult time making credit decisions? Copyright 2011, The Collection Law Group, Inc.

6 So…what is the answer… Need to take an approach that is both scientific and artistic. Time is of the essence handout 2 Today more than ever internal credit and collection policies are essential Copyright 2011, The Collection Law Group, Inc.

7 It All Starts With Credit Can’t have a collection issue without extension of credit Collection Process starts with good credit decisions Have a credit policy Understand the impact of “The Multiplier” on credit decisions – Handout 3 Is all bad debt bad? Have a credit application Copyright 2011, The Collection Law Group, Inc.

8 What is basic information on credit application? Vital personal and company information Handout 4 Get personal guarantee – Handout 5…Why Get personal financial statement…Why Include late fees and collection costs…Why Have it signed…Why Make a credit decision based on information available…(application, references, clients, internet, etc…) Copyright 2011, The Collection Law Group, Inc.

9 If Service firm have an engagement letter Do you as a CPA have a credit process? Why have an engagement letter Include important terms in letter – Hourly rates – When invoices are due – Penalties if invoices not paid or not paid on time – Sign off on hours worked – Get engagement letter signed…Why? Copyright 2011, The Collection Law Group, Inc.

10 So you have a credit policy and goods or services have been delivered or performed and Surprise…the customer/client does not pay…Now what??? First have a firm internal collection policy and procedure – When to call…How to call…Who calls…How may times are calls made…What is said in each call…Send letters…How many letters…What is said in the letter… Implement the internal collection procedure Copyright 2011, The Collection Law Group, Inc.

11 Internal Collection Efforts Who does your internal collections? Should an account executive do collections? Should a partner/principal do collections? Should you introduce a new internal person to collect from debtors? Copyright 2011, The Collection Law Group, Inc.

12 Some Keys To Internal Collection Efforts Figure out what will motivate the debtor (fairness, credit, principles, relationships) Know your objective Ask for the money Control the agenda Calls and letters should be firm and professional and not emotional and personal Copyright 2011, The Collection Law Group, Inc.

13 Why do internal collection efforts fail? Debtor is A staller Disputing amount due Out of money Going through adverse times A poor budgeter So despite all efforts… Copyright 2011, The Collection Law Group, Inc.

14 Internal Collection Efforts Have Stalled …Now What??? You explain to the debtor that their lack of payment will cause the European economy to continue to spiral downward Find the debtor’s spouse and explain they can’t go on that cruise because bills are still unpaid Call the debtor’s kids and explain that the new Xbox belongs to us because it was paid for with the tax refund we created Call the debtor’s neighbor and explain that property values are declining due to the debtor not paying bills No…we can’t do any of those things… Copyright 2011, The Collection Law Group, Inc.

15 Determine if the time is right to send to a third party Determine if the account has value Despite doing all the right things internal collection efforts have failed …What next Copyright 2011, The Collection Law Group, Inc.

16 When the debtor posts a note a facebook that says “catch me if you can”. When your demand letter gets returned to you with a post card from the Cayman Islands and it says “Gone Fishin” When you get an auto reply from the debtor that says ‘SUCKER” If above happens it may be too late…How can we make sure we are not too late…Handout 6… When good communication ends? When Should You Place An Account With a Third Party? Copyright 2011, The Collection Law Group, Inc.

17 Time is of the essence… Distinguish between commercial and non- commercial account. Time is of the essence when it comes to placing commercial accounts for collection Copyright 2011, The Collection Law Group, Inc.

18 Actions Speak Louder than Words Actions speak louder than words … Is it too later when… Parking lot goes from 200 cars to number no longer works The regular number is now answered “Hello debtors anonymous “ There is a sign on the front door which says “CLOSED” Make sure accounts get sent out to a third party before it is to late Copyright 2011, The Collection Law Group, Inc.

19 What is a viable valuable account from a collection standpoint If the account is viable send it to a third party. If not viable write it off. Third parties are not magicians Some clients expect us to go above and beyond Why Use a third party to collect – Handout 7 Determine if The Account Has Value Determine if The Account Has Value Copyright 2011, The Collection Law Group, Inc.

20 A law firm A collection agency A collection/law firm Does size of the claim matter in deciding? Who should you send an account to once decided it is a viable third party account Copyright 2011, The Collection Law Group, Inc.

21 Do they understand your business? How do they charge? – Contingency vs. hourly – What is a fair contingency fee? Do they have the ability to impose consequences ? Who will actually be doing the collecting? Do they have litigators at their disposal? Do they litigate on a contingency basis? – What is a fair contingency fee? – Should you chase bad money with more money? Who manages the litigation? How do they report status of things? Things to think about in making a selection of who to send the matter Copyright 2011, The Collection Law Group, Inc.

22 Consequences Debtors are like children Imposing not just consequences but adverse consequences is the key If consequences cannot be imposed collection efforts will simply not be effective Why are third parties successful at collecting? Copyright 2011, The Collection Law Group, Inc.

23 Past due AR Past due payments under any type of agreement Accounts with reconcilable disputes Uncollected judgments What types of accounts will you be sending to a collection firm Copyright 2011, The Collection Law Group, Inc.

24 Collection first approach as opposed to litigation first approach – Direct communication with highest level – Direct communication with in-house counsel if available – Direct communication with outside counsel if available – s – Faxes – Letters – Key to collection first approach is “fear of consequences” Do collection letters work vs. or fax? How about using a draft complaint? Sometimes the best collection letter is service of a complaint What if we cannot find the debtor? What is the best approach a third party collection firm can take? Copyright 2011, The Collection Law Group, Inc.

25 Collect 100% of monies due Collect a percentage of monies due Work out a payment plan for all or a portion of the amount due Result sometimes is…The science of not collecting What are results of collection approach Copyright 2011, The Collection Law Group, Inc.

26 Write it off Litigate How long does it take to make that decision? Do deadlines have an impact on collections? What do you do if you cannot collect amicably? Copyright 2011, The Collection Law Group, Inc.

27 Who decides whether to litigate? What types of claims are worth litigating Where do you litigate? What are the costs to litigate? What role will you play in the litigation – Pleadings –Complaint, Answer, Motions – Discovery –Depositions, Interrogatories, Etc. – Trial -Need a Witness Litigation Decisions Copyright 2011, The Collection Law Group, Inc.

28 Process of litigating…getting expectations in order… Possible outcomes – Immediate settlement upon receipt of complaint – Settlement after filing of complaint or beginning of discovery – Lose at trial or on a motion – Win by getting a default judgment or summary judgment – Win at trial If lose you lose (appeals not likely)…If win what next? Decided to litigate…Now what Copyright 2011, The Collection Law Group, Inc.

29 How Do You Collect On A Judgment Judgment Creditor Just Pays It Garnish Wages Garnish bank Accounts Garnish receivables Levy Assets Which is best? How do you find assets Debtors Exam or Audit Sometimes you win the battle but lose the war.. So You Get a Judgment…Now What Copyright 2011, The Collection Law Group, Inc.

30 A Word or Two on Payment Plans Do they work? How do you structure them? Can you do a payment plan after you start litigation or after you get a judgment? What are problems with payment plans? Copyright 2011, The Collection Law Group, Inc.

31 Impact of bankruptcy on collections Preferences Is putting a company out of business or in BK helpful to us? Practical approach CMS SC Bottom line: Make sure payment plan keeps company in business throughout the preference period Copyright 2011, The Collection Law Group, Inc.

32 Monthly /Weekly Updates Make sure file is being worked. Create metrics to analyze effectiveness – Time to collect – Percentage collected – Litigation management How to Manage a third party? Copyright 2011, The Collection Law Group, Inc.

33 Write downs vs. write offs How can you prevent write downs? Are you willing to lose the client? Is a nonpaying client a good client to have? Can you get paid when service is delivered? Can you have a good future relationship with a client that continues to write down bills? Have reasonable expectation s about what clients are willing to pay for your services Practical Aspects of Collecting in the CPA Service World Copyright 2011, The Collection Law Group, Inc.

34 How to account for bad debt writeoffs Two methods – Direct Write -off – Allowance Method Which one is used for tax purposes? Which one is GAAP? Which one do most small businesses use? Copyright 2011, The Collection Law Group, Inc.

35 58 Properties Birdwell West Penn Strategic Monty The Rub PR 4 Winds Accounting Firm Truckers Case Studies Copyright 2011, The Collection Law Group, Inc.

36 Questions

37 The Art of Always Getting Paid… Well usually not always but most of the time if you handle accounts properly – Have a credit policy – Have a collection policy – Send to third party timely – Manage files Conclusion Copyright 2011, The Collection Law Group, Inc.


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