So you have a deadbeat customer...now what?

K

KeyFactor

Active Member
May 3, 2011
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In my experience, companies that don't pay their bills in a timely manner tend to fall into two categories:
  • the type that are honest but find themselves on the short end of the stick due to some other event (big customers go bankrupt, huge unexpected expense, partner/shareholder dispute, etc.) and now they have to "manage" their payables. They are genuinely sorry, always take your calls or reply to emails and make legitimate efforts to pay, even if they can't pay the entire amount immediately.
  • the second type is the complete opposite: they don't answer calls or emails, when you get them, they promise to pay, but later say they could due to problems with their bank or whatever. It doesn't just happen on the first invoice, but on every subsequent one. You all know who they are.
Sadly, the second group is far more common than the first. As a factor for our "full recourse" clients, we have not been able to do much with the second group. We've sent out demand letters, which have usually not been successful. We then charge back the invoices at which point our clients either use a collection agency (sometimes successful) or a lawyer/small claims action (usually the most effective, but potentially the most expensive option if by lawyer).

This is the strongest argument yet for using credit insurance - whether it be through our service or if the client chooses to hold the policy directly. Why expose yourself to the headache of chasing after these people, when you can simply file a claim? Remember, it's like any insurance - consider your deductible, make sure your paperwork is perfect in order to get paid out in the shortest possible time and be prepared to wait a few months for the check to arrive. Some factors offer this insurance through their non-recourse product where they pay out the full advance on the invoice and assume the headache of debtor insolvency or bankruptcy. Always be sure to do proper credit work first because you really don't want to file too many claims. Definitely something to think about.

I'd like to know what you guys do in these cases. If any have experience with non-recourse factoring, please chime in.
 
Our policy is to issue a claim against the customer immediately. If the customer is a carrier or broker, we sue the directors also. What do you suggest?
 
[QUOTE="What do you suggest?[/QUOTE]

htcollections, I'm not really an expert on this. I really was trying to see what people do and what approach is most effective. If you go the legal route, do you file the actions yourselves or use a lawyer? Option B sounds like it could get expensive.
 
I suppose it would depend on whether the action is in Small claims or Superior court. Paralegal or lawyer costs are never guaranteed, and often you will be in a position that you will have to subsidize the legal costs. History shows that , if you include all parties, the chances of a settlement relatively quick( with less legal costs) is high. If you are a factoring company and have a hold back( reserve) or other security, you may prefer to charge back the potential bad debt and avoid avoid having to go the legal route. It is common to issue a claim against shippers, receivers and a broker( if one is involved) and the directors.
 
I presume the approach is the same even in Quebec under the civil code? Yes, we chargeback to avoid accruing costs under such an uncertain situation.
 
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