Frequently Asked Questions About Commercial Collections
Business clients do not want to become involved in litigation, particularly suits to collect obligations from customers or clients. Unfortunately, most businesses will require help collecting outstanding receivables at some point.
Clients who are new to the collection process typically ask many questions when retaining James S. Friedman, LLC for representation in commercial collection matters. We want all of our clients to be thoroughly informed about what the process is and how it works. Here are some of the most frequently asked questions, along with answers that provide additional information about our collection practice.2. What is "commercial collections", and how does it differ from "consumer collections"?
"Commercial collections" focuses upon the collection of outstanding debts owed to a business by another business, or by an individual for a business-related debt. "Consumer collections" focuses upon collecting debts from individuals that were incurred for a personal, family or household purpose.
Numerous federal and state laws including, without limitation, the Fair Debt Collection Practices Act, regulate consumer collection activities. In sharp contrast, commercial collection activities are not regulated as heavily.3. Why should I use a collection attorney as opposed to a collection agency?
Most collection agencies do little more than send "dunning" letters to account debtors. These are almost always "form" letters that contain different names, addresses and dollar amounts, and are simply pumped out of a computer in batches that are as large or as small as necessary. An agency may follow up on these letters with telephone calls. Oftentimes, collection agencies will utilize "robo-call" software for this task. The agency will typically cease aggressive activities on the creditor's behalf the moment success appears doubtful. This is because collection agencies generally operate on a high-volume basis, and must therefore use what amounts to the identical "assembly line" approach for every matter they handle.
A collection attorney - particularly one who is interested in building a lasting relationship with a valued business client - will provide the client with more individual attention, and will use the legal process to develop a customized strategy grounded in the client's needs, as well as the facts and circumstances that gave rise to the underlying claim.4. What steps does a collection attorney take in handling a particular case?
Most collection matters usually begin with an investigation of the debtor and its financial status, including its liabilities and assets. Based upon this investigation, a determination is made as to whether to proceed with further collection efforts.
Any such investigation will be easier and more fruitful if the client has thorough records memorializing its dealings with the debtor. The firm not only reviews these records with an eye toward collecting the debt at issue, but will also advise the client concerning steps it can take to "tighten its paperwork" so as to improve its position in future collection matters. For example, we frequently encounter documents containing a promise by a business entity to pay for goods or services, but lacking a personal guaranty from one of the entity's principals. Oftentimes, the client's customer agreements also lack a promise by the customer to pay interest, attorneys' fees and/or collection costs. In such cases, we advise our clients to insert such provisions into their form agreements, and can draft them upon request.
A letter demanding payment follows the investigation. Sometimes, the debtor will respond to a demand letter with a request to attempt to negotiate a settlement. This is usually a positive development, since it has the potential to resolve the matter without time-consuming and distracting litigation.
If the demand letter does not receive a positive response, the next step is to commence a lawsuit. The New Jersey court system contains different courts within which a creditor may commence collection litigation. The selection of a particular court depends upon the dollar amount of the case, with relatively small dollar cases being assigned to courts that are designed to move claims through the system quickly. Some cases settle favorably after litigation is commenced, but before the litigation process runs its course. In other matters, the creditor is required to "go a few rounds" with the debtor, and may have to take the case all the way to trial. However, trial is an extreme step necessary only when there are factual issues in dispute. Many collection matters resolve summarily by means of motion practice that leads to the relatively speedy entry of a judgment in the client's favor.
Once a judgment has been received and docketed, the process of enforcing that judgment and actually turning it into money begins. There are several tools available to accomplish this goal. Debtors can be required by means of subpoena to provide an array of information outlining their financial resources. It may also be possible to seize assets and garnish wages.
Debtors will frequently attempt to hide assets or transfer them to other individuals for the purpose of trying to keep them from the reach of their legitimate creditors. At this juncture, the collection attorney will attempt to uncover hidden assets or undo wrongful transfers so as to make those assets available to satisfy the client's judgment. During this period, the judgment is accumulating interest at the judgment rate.
Clients often express concern over expending resources upon getting a judgment that is ultimately unenforceable. We generally advise our clients to get a judgment and docket it as a matter of record. As just noted, it is accruing interest at the judgment rate. Further, and particularly in those cases where the judgment is against an entity and an individual (such as a guarantor), it is not at all unusual for the individual to take steps to satisfy the judgment independently of any action by the entity because of the adverse impact the judgment has upon their personal ability to obtain credit.
The debtor may also attempt to run and hide in the bankruptcy court. To be protected from this unpleasant turn of events, it pays to retain a collection attorney who also understands the bankruptcy process. Our firm has experience in both State court collection proceedings and federal bankruptcy proceedings.
The firm's fee arrangements include hourly rate, straight contingency, or a combination of the two. Fee arrangements are discussed during the initial consultation, customized to fit the facts and circumstances of a particular matter, and ultimately memorialized in a retainer agreement.5. What is the likelihood of actually recovering money from a debtor?
Every businessperson who contacts the firm asks this question. In truth, the answer depend upon numerous factors, including the following:
- How old is the receivable at issue;
- How thorough, accurate and up-to-date are the client's records;
- Is the debtor still operating;
- Does the debtor have unencumbered assets;
- Is the debtor in bankruptcy or other collection litigation; and
- Are there other unsatisfied judgments against the debtor?
Some of these questions can be answered by means of a through investigation of the debtor's affairs. The only certainty in any collection matter is that the client will not get what the client does not seek. However, while it almost never hurts to attempt to collect a business debt, some debts clearly are more collectible than others.6. Does the firm only handle commercial collections?
The firm's collection practice focuses primarily upon representing business clients that are owed money by other businesses. Our clients also include businesses seeking to enforce individual or personal guaranties of business debt. Depending upon the client and the nature of the indebtedness at issue, the firm may accept retail collection claims, such as credit card receivables, on a selective basis.
Please read about the following topics of interest to our collection clients.
- Our Collection Practice
The New Jersey collection firm of James S. Friedman LLC represents businesses located anywhere in the world that are seeking to collect commercial debts or enforce foreign judgments in New Jersey. If your business is seeking a New Jersey collection attorney, contact the firm at 800-361-6554 or by e-mail for an evaluation of your claim.