Maximizing Your Business Account Receivables
Every business knows there is a world of difference between being owed money and being paid what is owed. While most business disputes are resolved without needing to go to court, sometimes your clients and customers simply will not or cannot pay for the products and services you have provided them. Below are some laws and tips to get the money you deserve.
The “Three Ws” of Business Contract Rights
1.Whether or Not You are Owed
Any business transaction should have a written and signed contract before you start work. However, businesses may be entitled to payment for products and services rendered regardless of whether or not there was a signed contract. Businesses need to be very careful with “oral contracts” as some transactions required a signed writing to be enforceable in court. For larger, more complex transactions, having an attorney draft or review your contract can be well worth the added time and expense if there is trouble down the road. Even if there is no contract, courts may award money for services rendered or to make up for your business’ detrimental reliance on someone’s promise to pay.
2. What You are Owed
Having a contract makes calculating how much you are owed, or “damages” in legal jargon, much easier. This is especially true if the contract is for services rather than the sale of goods. Most contracts specify damages for breach, though Georgia allows for all damages that “arise naturally and according to usual course of things from such breach . . . as the probable result of [the] breach.” Even if you or your business are harmed by a breach of contract, you have a duty to lessen the damages “as far as practicable by the use of ordinary care and diligence.” Finally, although you can sometimes force the breaching party to fulfill their end of the bargain, often courts allow only money damages for a breach of contract.
3. When You are Owed
The timing of breach is important for the amount of damages you can collect. Sometimes courts look to whether a breach is “material,” or important to the contract, to determine when the breach started. Other times courts will allow a business to seek damages or revoke a contract if the other party represents they will not fulfill the contract or if the other party cannot reasonably be expected to fulfill the contract. Generally, courts do not like to hear about what either party said before, during, or after the contract was signed; court would rather look to the language of the contract. If, however, you grant a waiver, extension, or other special consideration to the breaching party, make sure to get it in a signed writing so they cannot claim you waived the right to sue for breach.
What to Do If They Won’t Pay
Sometimes no matter how many times you call or how many invoices you send, your customer or client just will not pay. Here are some strategies and remedies to get your money.
1.Send a Demand Letter
Sending a demand letter can be more effective than sending notices of past due account status for some customers. A demand letter is usually written by an attorney, and generally attorneys will charge less for a demand letter than an actual small claims court filing. The demand letter gives notice of the debt and the intent to engage in lawful collections if the debt is not paid. Try to be flexible by setting up a payment plan with delinquent customers if possible.
2. Send the Debt to Collections
Sometimes it is better to simply let someone else handle the debt collection. Business can generally give away their right to collect on an account in exchange for a fraction of the account’s value. While getting anything is usually better than getting nothing, be careful about being too quick to use collection agencies; it may hurt your reputation in the community and will certainly impact your bottom line if you recover only a small percent of each account.
3. Write it Off for Favorable Tax Deductions
Sometimes it is better for a business to simply “write off” a bad business debt. The IRS allows a tax deduction for certain bad business debts. Not every debt can be written off however, and the tax benefits for writing off the bad debt may be worth less than trying to collect on the debt. Talk with your CPA or tax attorney to see whether or not taking a §166 deduction makes sense for your business and makes sense for this particular situation.
4. File a Lawsuit
When all else fails you can file a lawsuit to recover on the contract. The Magistrate Courts are used for claims totaling $15,000 or less. For larger claims you will need to file in the Superior Court, or possibly a Federal District Court. Filing a lawsuit can be a time and expense heavy exercise, so filing a lawsuit may be overkill for small debts. Assuming the case does not settle (which many cases do), if the court rules in your favor you may receive judgment funds in a lump sum, from an ongoing garnishment of the debtor’s wages, or by eventually recovering from having a lien you place on their property satisfied. Be careful if you do not have an attorney representing you or your business in court, because some mistakes mary bar you from refiling you case later or in a different court.