Effective collection of delinquent accounts plays an indispensable role in the financial solvency of any business. The best approach to handling accounts receivable involves implement procedures and noting warning signs before vendors, suppliers, and others with whom you have business contracts become past due on their accounts. Although you might need an experienced business attorney because some degree of non-paying or late paying business clients is unavoidable, prompt responses to certain red flags might reduce the volume of problem accounts.
One reason companies need to identify red flags and respond promptly is that the probability of collecting full payment from a business debtor decreases substantially with the passage of time. While estimates vary depending on the source, many companies that handle collections on a B2B basis note that the probability of recovering the balance on an unpaid obligation declines by more than one percent per week. Below we have provided some suggestions for responding to potential red flags:
Employee Layoffs: When businesses undertake significant layoffs, this is an obvious red flag potentially indicating that the business might be having cash flow issues or other financial problems. If the employee(s) leave after a long tenure with the company, this might be an even more significant sign of financial issues. Admittedly, a single employee might simply have moved away or obtained a higher paying position, but a mass exodus could suggest that you need to stay on top of the particular account and weigh the merits of entering into new contractual arrangements.
Delays Related to Loans or Funding: Although many businesses use various forms of leveraging and rely on business loans, an indication that a debtor wants to put you off while waiting on financing might be an issue. The fact that the company needs a loan to pay your invoice might be a red flag depending on the size of the transaction and the routine nature of the account. If this is a long-standing relationship with a regular amount being billed, a sudden inability to cover the expense might suggest future problems.
Selling of the Business: If a customer is selling his or her business, this can be a very bright red flag. While selling a business does not always constitute deep financial problems, this type of transaction often amounts to a last gasp effort to extract profits from a failing business. The distractions and interruption associated with the sale of a business also will often interfere with accounts being paid on a timely basis. The situation can go from bad to worse if the deal falls through or the ultimate amount paid for the business is significantly less than anticipated by the seller. Generally, you should engage in a fair amount of due diligence before entering into a business relationship with a business in this situation.
Andrew Weisblatt of the Weisblatt Law Firm in Houston has been advising all types of businesses from large corporations to one-owner operations for many years. He understands the unique approach needed for each type of B2B debtor that you have to ensure the most successful collection results possible. Please do not hesitate to call a B2B collections attorney at 713-666-1981 today.
Mr. Weisblatt has practiced continuously since becoming licensed in 1992 and has represented businesses ranging in size from one person start-up ventures to multi-national corporations employing hundreds of people in multiple countries. From 2005 through 2009 Mr. Weisblatt was in-house counsel and chief operating officer of a multi-national corporation in the steel products industry. That in-house position provided valuable insight into how businesses work and what they actually need from their lawyers – both in-house and outside counsel.