Action Plan Online, Part 3 of 10

AWOL accounts receivable can play havoc with your balance sheet. Here’s how to recover your money – and keep your customer.

What a lawyer says
First, prevention is key. While you can’t predict who will default on what’s owed, you should do due diligence on your customers before you supply them. “We find that many clients don’t take the time to put a contact in place,” says Jeff Kahane, a lawyer with Caglary’s Kahane Law Office. “Every business should have a legally binding contract that specifies payment terms.”

Marc Zybetz, another lawyer with the firm, adds that the contract should allow the business to register a casement against property should things go sour. If you’re dealing with a smaller company that doesn’t own property, you can ask for a personal guarantee from the owners.

If these preventative measures don’t work, you may be able to register a lien against the company’s property. “It doesn’t help with immediate cash flow, but down the road, when they have to refinance or sell the property, you will get your money,” says Kahane.

You can also sue. Zybetz says that exercising your legal options doesn’t have to ruin a business relationship. “There are law firms that deal with debtors on a regular basis. We have clients with private mortgages and foreclose on them, but continue doing business with them because there’s respect there,” Kahane says.

What a debt collector says
Don’t let the stereotype of a nasty debt collector with forearms the size of Popeye’s and a name like “Biff” stop you from considering the services of a debt collection agency. Look for an agency that deals with commercial debts and is properly bonded and insured. Many won’t take a percentage of the amount owed unless they successfully recover the money.

Brad Lohner, the owner of Edmonton-based Priority Credit Recovery Inc., says the nature of debt collection has changed; while most used to request a “soft” approach, more are now playing hardball, and sending more files to collection. In a weak economy, old alliances mean less.

To avoid hiring a hard-ass agency that will harm your reputation, ask in detail about their tactics, and ask to read, for example, their collection letters. “A reputable collection agency should always attempt a win-win negotiation with its clients’ customers,” says Lohner. “Just because a company is struggling to meet its credit terms, we don’t want to prevent that company from purchasing from our client on a cash basis if possible.”

What Alberta Courts advise
In Alberta, you can only sue for $25,000 and less in small claims court (called the civil division of provincial court). If the debt exceeds that and you don’t want to abandon the remainder, you have to sue through the Court of Queen’s Bench, and for that you should seek the advice of a lawyer, which will add to your costs.

Interview by Lindsey Norris

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Action Plan in Print: Cash Flow Fixes

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