COVID-19 continues to significantly impact NY and NJ businesses, creating a challenging environment for the collection of payments for businesses of all sizes…
COVID-19 continues to significantly impact New York and New Jersey businesses, creating a challenging environment for the collection of payments for businesses of all sizes. While late payments can drastically impact cash flows, many businesses are understandably concerned about damaging existing relationships in the midst of a pandemic.
1.Set Clear Expectations. All of your agreements and contracts should expressly state the terms of payment, including when payments are due, how payments must be made, and the penalties for failing to pay in full or on time. These terms should be emphasized when dealing with clients, vendors, and business partners.
2.Develop policies and procedures that encourage customers and clients to keep their payments current. The further behind a customer or client gets in making payments, the harder it is to catch up. Alerts should be set up in your invoicing or accounting system to notify you when a payment is approaching 30 days late to ensure that issues are addressed before they escalate into more significant challenges.
3.Have a Demand Letter Ready. When phone calls and other reminders have failed, a carefully crafted demand letter can assist in avoiding a protracted legal dispute. The demand letter should list all outstanding amounts due, including any late charges or accrued interest, and request payment immediately. Depending on the length and importance of the relationship, it may also state that you are prepared to take further actions, including the possibility of suit, if payment is not timely made. The goal of a demand letter is to put the other party on notice of the debt, memorialize the nature of the dispute in writing, and encourage the other party to resolve the outstanding payments to avoid involving a court.
4.Keep Good Records. It is often necessary to follow up a demand letter with a telephone call or email. Throughout the debt collection process, it is imperative to keep a thorough written record of your efforts and any communications with the client. Should you need to pursue legal action, this information may prove invaluable.
5.Be Willing to Negotiate. In these challenging times, some payment is often better than no payment at all. In addition, should you ultimately file suit, the other party will have difficulty disputing the debt if you can provide evidence of partial payment. Payment options for customers having financial difficulty may include reduced installments, extended due dates, offering incentives for on time payments, and waiving interest/late fees. However, should you decide to alter the payment terms, the new terms should be memorialized in writing, ideally via contract amendment or addendum.
An experienced attorney can help ensure that you don’t run afoul of any state or federal regulations governing debt collection. Violating laws like the Fair Debt Collection Practices Act (FDCPA), which governs personal, family and household debts, can be extremely costly.
In most cases, working with experienced legal counsel will boost your chances of success when seeking to collect an unpaid debt and prevent potential costly mistakes.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Michael Sheppeard, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
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