Collecting on Your Accounts

Business Law Notes

Spring 2005 Edition



By Sam Johnson

The following are useful practices that may improve the probability that you will collect on the accounts due your business:

  • COMMUNICATION – Throughout the relationship with debtor, you should communicate on a regular basis with a friendly phone call to see if everything is going smooth, and address any problems that arise before they get out of hand.
  • WRITTEN CONTRACT – A written contract describing the assignment and provision for timely payment of services and expenses is important.
  • ADVANCED PAYMENT – In some cases you may be wise to require an advanced payment.
  • SECURITY – It may be appropriate to require a promissory note and deed of trust on real estate or other form of security from a customer or client that is likely to encounter financial problems. You will need the services of your attorney to draft the documents and file them in an appropriate office. If this is done properly, you will likely be protected, even in bankruptcy.
  • BUSINESS ORGANIZATION – Clearly understand the identity of your client/customer. Is the business a corporation or sole proprietorship or something in between? If the client is a new corporation with limited assets, then it is appropriate to have a personal guaranty signed by the owners and their spouses. If the owners refuse to sign, this is an indication of future collection problems.
  • RECORD KEEPING – There is no substitute for thorough record keeping. Develop a system that collects and retains all essential records, statements and correspondence regarding your accounts.
  • TIMELY BILLING – Billing on a regular, usually monthly, basis. The longer the interval between delivery of service or product and the billing, the more likely there will be difficulty in collecting the bill.
  • LEGAL ACTION — Before filing legal action, investigate collectability, consult with your attorney and make a prudent decision.

It is Not Trash!

By Jean Winborne Boyles

Frequently a client asks “What is this? I have a demand letter for several thousand dollars from a bankrupt company.” I question the client if he knew the company was bankrupt and if he had received bankruptcy notices. The usual answer is “Yes, but they were bankrupt, I didn’t expect to get anything and I threw it in the trash.” It is not trash! When one gets a notice from the Bankruptcy Court, it is prudent to have an internal policy which funnels the notice to an individual who knows what to do. You should do these basics:

  1. Set up a file;
  2. Determine if this debtor has paid you anything within 90 days of the date of filing of the bankruptcy; and
  3. Save the Proof of Claim form and information about what monies the bankrupt debtor owes you and determine how to file the Proof of Claim.

If the debtor has made payments to you within 90 days of the date of filing (the “preference period”), he may make a demand for repayment of these funds. Such demand will usually happen a year or so after the bankruptcy has been filed and after the bar date for filing a Proof of Claim has passed. If you have, in fact, received payments within the 90 day period, contact an attorney to discuss your situation. Fill out a Proof of Claim to the best of your ability. I recommend that you let your attorney do this. Do not try to claim a secured debt if it is unsecured. Attach the supporting documentation and make a notation that you reserve the right to amend your claim. Send it to the address noted on the form. Remember, this bankruptcy notice is not trash. It does not mean you have lost money, it may mean you owe money! Pay attention and do not trash the notice.


About our Authors:

Sam Johnson. His law practice areas of concentration now include association law, legislative law, general business advice, estate planning and probate law including preparation of wills, durable business power of attorney, living wills, health care power of attorney and trust agreements. A 1953 graduate of the University of North Carolina School of Law, he is admitted to practice in the U.S. District Court, Eastern District of N.C. and U.S. Supreme Court. He served in the N.C. House of Representatives from 1965 to 1974. He has also served as a Trustee, University of North Carolina, 1967-1972; Chairman, N. C. Local Government Study Commission, 1967-1973. N.C. Joint Select Commission on Fiscal Trends and Reform,1992-1993; Advisory Budget Commission of N.C., 1969-1971; and Special Counsel to Speaker of House of Representatives and Lt. Governor, 1975-1977. He has been inducted into the North Carolina General Practice Hall of Fame.

Jean Winborne Boyles concentrates her practice in health law, corporate law, bankruptcy and creditors’ rights, commercial leasing, antitrust and state administrative law.

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