Credit & Collections Kit For Dummies®
Table of Contents
Part I: Nice Guys Can Finish First: Making Good Use of Credit and Billing Practices
Part II: When Being Nice Isn’t Working: Transitioning from Billing to Collections
Part III: When Things Get Ugly: Stepping Up Your Collection Efforts
Part IV: Taking a Hard Line: Suing Your Debtor
Part I: Nice Guys Can Finish First: Making Good Use of Credit and Billing Practices
Chapter 1: Getting to Know Credit and Collections
Establishing Good Habits for Credit and Collections
Staying in Control through Good Documentation
Using documents in the extension of credit
Using documents in the billing process
Using documents in the collection of past due accounts
Knowing When to Hire Professionals
Arriving at the Last Resort: Litigating to Recover Delinquent Balances
Chapter 2: Credit 101: Defining and Applying Credit Concepts
Extending Credit in a Nutshell
How to Use Credit as a Sales Tool in Your Business
Calling the Shots: Establishing a Sound Credit Policy
Creating a written credit policy
Implementing your written credit policy
Customizing Your Credit Policy to Meet Your Needs
Adjusting credit extension to your industry
Adjusting credit terms to the quality of the customer’s paying habits
Adjusting the level of your accounts receivable
Setting credit extensions based upon ability of customers to pay
Setting credit terms based upon interest and late fees
Avoiding discriminatory practices
Knowing Your Customer and Lending Accordingly
Putting your knowledge into practice
Applying the Five Cs of Credit
Chapter 3: Extending Credit Carefully While Controlling Your Risk
Determining Which Customers Are Worthy of Credit (And Which Aren’t)
Gathering and using vital credit information to determine your risk
Spotting warning signs of a high-risk customer
Creating Credit Ratings for Your Customers
Starting with a credit application
Reviewing financial statements to spot trends
Putting your research together to assign a rating
Considering Options to Reduce Risk
Knowing when to insist on a personal guaranty
Maximizing Your Leverage: Filing Liens for Protection
Understanding liens and how they can help you
Examining types of securable personal property
Looking at how long liens last
Exploring attachment and perfection of liens
Considering Letters of Credit for a Risky Customer
Exploring a Confession of Judgment
Chapter 4: Establishing Good Billing Practices to Avoid Collection Headaches
Components of a Well-Run Accounting and Billing Operation
Interest charges for late payments
Setting Up an Effective Billing System
Purchase orders: Proving the order was placed
Invoices: Obtaining payment through effective invoicing
Delivery receipts: Establishing proof the product was received
Credit and debit memos: Documenting changes in the balance owed
Change orders: Putting modification of the agreement in writing
Statements of account: Sending monthly statements as a regular reminder to pay
Creating an effective billing system
Sidestepping billing discrepancies by putting everything in writing
Getting Bad Accounts off the Books: You Gotta Know When to Fold ’Em
Training Your Staff in Billing Matters
Respecting confidential and sensitive data
Chapter 5: Spotting and Reacting to Changes in Customer Habits
General Controls for Keeping Your Cash Flow Steady
Tailoring Your Strategy: A Short Leash for New Customers
Setting tighter controls for newer customers
Spotting Trends and Patterns of Payment
Keeping an eye (and ear) on your customer
Monitoring industry trends and bracing for slowdowns
Reacting to customers’ excuses, bad habits, and broken promises
Spotting Dubious Changes and Handling Them Quickly
Changes in ownership of a client business
Changes of address or phone number
Changes in financial condition
Changes in your customer’s understanding of purchase or credit terms
Dealing with the Elusive Customer
Breaking free from voice mail jail
Detouring around the disconnected phone
Chapter 6: Stayin’ on the Right Side of the Law: Knowing Your Rights and Duties
Basics of Bankruptcy and Receivership
Types (chapters) of bankruptcy
Verifying that your debtor has actually filed bankruptcy
Basics of Product Sales and Leases: The Uniform Commercial Code
Product not as ordered, or not authorized
Delays in notification of any defects
Forced to purchase from another supplier
Understanding the Fair Debt Collection Practices Act (FDCPA)
Communications with third parties
Telephone calls: When and where
Good practices under the FDCPA
Using the required form language
Complying with state laws: Consumer protection acts
Complying with the Fair Credit Reporting Act
Following the Requirements of the Equal Credit Opportunity Act
Obeying Truth in Lending and Fair Billing Laws
Respecting Privacy Requirements
A Quick and Dirty Contract Law Reference
Making it clear who you are contracting with
Why written deals are better than oral ones
Contract modifications: Make ’em clear (and written)
Knowing that your credit applications are contracts and your invoices aren’t
Customizing provisions to meet your needs
Default provisions (Acceleration and other handy clauses)
Dealing with contract mistakes (Yours, theirs, and mutual)
Avoiding debtor escape clauses
Legal Limits on Interest Rates
Part II: When Being Nice Isn’t Working: Transitioning from Billing to Collections
Chapter 7: When Your Late-Paying Customer Turns into Your Debtor
Creating an Atmosphere of Urgency
Communicating Effective Reminders to Pay
Writing effective collection letters
Special concerns for consumer debtors
Still not paid? Escalating your approach
Customizing your notification approach
Don’t forget the power of a phone call
Documenting the File: Having Good Notes When You Need Them
The paper trail: How good records help you both in and out of court
Anticipating reactions: Playing devil’s advocate
Pursuing written admission of the debt
Chapter 8: The Ins and Outs of Collection Phone Calls
Strategies for Successful Collections
Selecting who will make the calls
Having the debtor’s file at your fingertips
Taking notes to capture the moment
Making the All-Important First Call
Tricks of the Trade: Handling Your Collection Call like a Pro
Perfecting your “telephone voice”
Pressing the receptionist for details on business debtors
Getting the correct person on the line
Making proper comments and avoiding the improper
Listening, yet controlling the conversation
Keeping Your Eyes on the Prize
Playing the cards you’re dealt: Dealing with the debtor’s personality
Keeping your temper: The secret to success
Getting on a Roll: Making a Series of Collection Calls
Chapter 9: Overcoming Disputes, Real or Phony
Getting and Using Admissions from Your Debtors
Documenting admissions: Creating a paper trail
Collecting the admitted balance
Identifying and Resolving Disputes
Asking, then listening: “What seems to be the problem?”
Consider your debtor’s perspective
Addressing the issues, one by one
Detecting and Dealing with Stall Tactics
Responding to common stall tactics
Short-circuiting stall tactics
Negotiating: Planning on Some Give and Take for a Win-Win
Knowing why negotiating is a smart move
Sharpening your negotiating skills
Getting legal or business advice
Knowing when to take your collection effort to the next level
Chapter 10: Closing the Deal: Wrap It Up in Writing
Creating and Completing a Written Agreement
Composing a letter or e-mail to your debtor
Using a promissory note to confirm a deal
Getting the Payment Plan Underway: That All-Important First Installment
Part III: When Things Get Ugly: Stepping Up Your Collection Efforts
Chapter 11: Increasing Intensity to Achieve Collection
Keeping a Payment Plan on Track
Reminding your debtor to honor the deal
Promising follow-up legal action: When and how
Maintaining Aggressive and Persistent Communications
Staying in communication with your debtor
Stepping carefully to avoid setting yourself up for a lawsuit
Obtaining and Depositing Postdated Checks and Electronic Payments
Reporting Debts to Credit Bureaus
Chapter 12: Locating a Hard-to-Find Debtor
First Things First: Do You Want to Do This Yourself?
The Art of Finding People: Using All the Resources Available
Using public records and directories
Additional methods of obtaining information
Using your instincts: They’re better than you think
Considerations to keep in your plan
Chapter 13: Bringing in Outside Collections Professionals
How Outside Debt Collection Professionals Can Help You
Determining what services you need for your claim
Deciding When (Or Whether) to Bring in the Pros
Factors that may affect your decision
Cost considerations: Should you write off the debt instead of turning it over?
Providing information to your professional
Avoiding and Resolving Problems When Working with Collection Pros
Get it in writing: Entering into a contract for services
Establishing standards of ethics and behavior with your collections pro
Giving your professional an organized file
Deciding when to cut and run: Terminating the relationship
How to file complaints for poor service
Chapter 14: Dealing with Bad Checks and Other Rough Spots
Being Proactive: Creating Systems That Help You Avoid Problems with Checks
Nonsufficient funds (NSF) checks
Checks drawn on uncollected funds
Figuring Out What to Do When a Debtor Relocates
Attempting to collect across state lines
Using a professional where your debtor is located
Being Careful When Pursuing Your Money
When Things Look Bleak: Situations That May Require a Write-Off
Customers in bankruptcy or receivership
Claims on a deceased debtor’s estate
Part IV: Taking a Hard Line: Suing Your Debtor
Chapter 15: Determining Your Litigation Strategy
Assessing the Strength of Your Case
A Fork in the Road: Considering Alternative Dispute Resolution Instead of a Lawsuit
Don’t count out a lawsuit just yet
Working Your Way through Alternative Dispute Resolution
Choosing your arbitrator or mediator
Preparing for your ADR (and deciding whether you’d like some help)
Developing a Litigation Strategy Before Filing Your Lawsuit
Suing all the parties involved
Using the appropriate legal theories
Finding and preparing witnesses
Finding and preparing documents
The Statute of Limitations: Handling a Legally Expired Claim
Whether to sue on an expired claim
Calling for the money, even though the claim has expired
How to renew the expired debt: A trick of the trade
Chapter 16: Understanding How Lawsuits Work
Considering Case Complexity and Cost
Deciding whether to hire a lawyer
Looking at costs and fees (both with and without an attorney)
Squaring Away Your Suit with the Court
Filing your lawsuit with the court
Ensuring your lawsuit is properly served
Serving the suit to a hiding defendant
After service: What happens next
Obtaining a Judgment by Default
Dealing with a Contested Lawsuit (You Can Do This)
Understanding the defendant’s answer to the complaint
The discovery stage: Asking questions of the defendant before trial
Talking to the Judge before Trial
Chapter 17: Selecting the Court
Choosing Which Trial Court to Use
Lawyer lingo: words and concepts you’ll encounter in court
Small claims court: Perfect for the do-it-yourselfer
When the Trial Goes Wrong: Filing an Appeal
Standards for filing an appeal
Selecting the correct court to file your appeal
Chapter 18: Surviving the Trial
Handling Small Claims Court Yourself
Winning through organization and preparation
Making your testimony powerful
Introducing evidence you bring
Calling witnesses and asking questions
Being a Witness in Trial Court
Talking to your attorneys before the trial
Offering documents into evidence
Chapter 19: Collecting a Judgment
Knowing the Basics for Turning a Judgment into Cash
Considering your postjudgment options
Utilizing Court Procedures after Judgment
Collection tools available through the courts
The court’s role in the collection process
Conducting a creditor’s examination: Asking the right questions
Grabbing Cash: Effective Use of Garnishments
Figuring out who or what to garnish
Garnishment priorities: Other creditors competing for the same funds
Issuing multiple garnishments at the same time
Strategies for successful seizures
Using a Receiver to Enforce Collection
Wrapping Up the Collection of a Judgment
Accounting for money collected under a judgment
Filing a satisfaction of judgment and reporting to the credit bureau
Chapter 20: Ten Common Pitfalls in Credit and Collections
Not Taking Preparation Seriously
Not Sharpening Your Collections Skills
Not Recognizing Potential Problems
Failing to Act Timely to Place the Account for Collection
Refusing to Be Practical with Delinquent Customers
Avoiding Obnoxious and Insulting Debtors
Not Following Guidelines Set by the Fair Debt Collection Practices Act
Failing to Obey the Automatic Stay in Bankruptcy
Failing to Get Security for Debts Whenever Possible
Failing to Write Off a Dead-End Account
Chapter 21: Ten Tips for Maintaining Cash Flow
Reviewing Your Credit Policies
Knowing Your Customers — Especially New Customers
Monitoring Customers Who Pay Slowly
Using All Your Leverage: Cutting Off Slow-Paying Customers
Cultivating New Customers Constantly to Replace Bad Payers
Tracking the Age of Your Accounts Receivable
Being Specific in Your Communications
Keeping Your Credibility and Avoiding Idle Threats