The days of the firm handshake between business associates are gone forever. There are steps you can take to assure reimbursement payment for services rendered or materials provided. Establishing a contract containing specific language is an essential first step. When doing business, it is important to know your legal rights as you proceed. It is recommended that the service provider or creditor ask its customer to complete and execute some form of agreement or application prior to providing services or materials.
This agreement or application should incorporate the following concepts:
1. The name of the customer and whether it is a corporation, LLC, partnership or individual with an assumed name. Other pertinent information must include the business address, telephone number and name of a contact person in Accounts Payable. The business should also include the names of the officers, shareholders, partners or members.
2. There should be a provision in the agreement/application for attorney’s fees in the event of a default in paying past due invoices. This provision protects the creditor in the event of a default and gives the creditor the right to seek reasonable attorney’s fees in a court proceeding. If this language is not included in the agreement/application, as the creditor, you may not recover your collection legal costs.
3. In addition, there should be a clause regarding finance charges. These charges are added to the customer’s obligations and in the event an account is past due, specific language must be included in the agreement/application in order to charge a finance fee.
4. Lacy Katzen also recommends a personal guarantee of any start up business. This personal guarantee may be written on a separate page of the agreement/application and it is typically signed by the president of the corporation, or a member of the LLC, or a partner in the partnership. You should select a personal guarantor with the ability to pay for the financial obligations due to you.
Incorporating these four concepts in a business application will help to insure more timely collection of debt.
If you are providing services or materials to a customer that is either part of a public project or real estate development, additional information is necessary. Be sure to include the following:
1. The name of the owner of the real estate project or the public authority who is charged with the project.
2. If you are a sub-contractor, the name of the general contractor involved in construction of the project.
3. If this is a public project, the project number should be noted and also the name of the public authority responsible for payment.
4. If a bond is being provided for the project, the name of the bond company and its contact information should be obtained.
After all information is gathered, it is critical to have a process in place for the service provider to collect accounts receivable. We recommend that a time frame is set in which a person is responsible for knowing when payment is due and for recognizing when accounts receivable are overdue 30-60 days or more. This individual is responsible for turning over any overdue account to your attorney or collection agency for immediate action.
We recommend this time frame to turn over the account for collection, since any legal proceeding will take additional time and the goal is to receive payment as quickly as possible. For this reason, it is important to have someone in charge to set the process in motion.
Partners Jennifer Chadwick and Mark Stein are available to assist you in protecting your business and collecting accounts receivable. Mark Stein is a partner in the Collections and Creditor Rights Department at Lacy Katzen LLP. He handles both commercial and retail collections for financial institutions, national department stores and regional and locally owned businesses. He has been with the firm since 1992, and has had experience in this area since then. Please contact Mark Stein at 324-5706.
Jennifer Chadwick is a partner in the Corporate Department and represents a variety of clients in the areas of corporate banking and real estate law. Since 1997, she has assisted many of her corporate clients with collection of accounts receivable. Ms. Chadwick may be contacted on her direct line at 324-5721.