Archive for the ‘Collections’ Category

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Contract Terms and Conditions That Help Collections

Contract Terms And Conditions

Depending on which side of the table you are sitting at when signing a contract, will determine how the collections process at the end of project will go. Contract terms are key to a successful collection for final payment.

A good contract can help the parties by:

  • Lay out the scope of work for the project so that parties are on the same page;
  • Assess where attorney fees will be awarded, many contracts award to one party or the successful party;
  • Allow for penalty and interest terms to add to an overdue balance;
  • Providing for liquidated damages if problems arise;
  • Allow for ADR clauses which can speed up the collection process.

As I discuss on this blog often, large scale projects have all these contract terms covered in the extensive documents that are executed at the outset by the parties. Most of the issues, which can really aid in collections, that I see come in with small project contracts or projects without a written contract.

Scope of Work

Having a clear and itemized scope of work is essential. Each party to the contract must be crystal clear as to who is to perform what task. Scope of work can include such items as who will pay for labor, materials, shipments and equipment rentals. Also it will spell out what work is to be performed and when. The reason why so many projects have change orders or change directives, is due to poorly written scope of work contract terms.

Attorney Fee Contract Terms

In my business, lawyers treat an attorneys fee provision like the holy grail. Its almost like the attorney feels like he has the green light to do all the work possible to collect on the claim. While this may be helpful, courts do not always award attorney fees. Despite that most cases settle and its rare that settlement include attorney fee payments.

The standard in the United States is the American Rule, which states that each party is to pay its own costs and attorney fees when in a dispute. If a party is on the correct side of an attorney fee provision that can mean tens of thousands of dollars for that party if successful. It is a powerful negotiation tool.

Penalty and Interest Contract Terms

Penalty and interest contract terms can also work like attorney fees. They are used to incentivize the defaulting party to pay or the cost of non-payment will go up. These terms are in most contracts that we, as a public, use these days.

Typical interest rates are around one to one and a half percent per month which equals anywhere between twelve and eighteen percent per year.

Liquidated damages contract terms are not favored by courts but they are favored in practice. Courts will not enforce them when used as a single outrageous penalty, but they will allow them when they are more fair and reasonable.

ADR Clauses

As always it is very important to include alternative dispute resolution contract terms. ADR as we call it, includes mediation and arbitration. Arbitration is binding and Mediation is when the parties get together to try and work out a deal. Some contracts will pick one alternative over the other. Others will require mandatory Mediation, then if that fails subject the parties to Arbitration.

No matter how the contract terms lay out the ADR, its best to have the terms in there so that parties avoid litigation.

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Commercial Debt Collection – How Do I Collect When A Company Owes Me Money?

 businessman with financial symbols coming from hand

In today’s business culture we call businesses working with other businesses B2B. It has always been a popular practice to the alternative, business to consumer. The rules are different governing B2B as opposed to B2C. The legal and business world assume that the B2B relationship and players are more sophisticated.

This post discusses what happens when the B2B relationship sours and one company must collect what it is owed from another company. The most important distinction between the rules of B2B and B2C is that consumers are much more protected by government regulation. The Fair Debt Collection Practices Act protects the consumer, not businesses.

Phases of Collection

Most business think that when an account is overdue, then they call up a debt collection agency and the debt will be collected or its deemed bad debt. Businesses write off huge percentages of accounts receivable every year based off this flawed thinking.

There are at least two phases of debt collection, each of which could arguably be broken down into subcategories. You have a pre-debt fact gathering and document filing stage, as the first phase. Then there is the actual debt collection which can consist of many different options and this occurs after the debt is due. So more of a pre/post mindset.

Pre-Collection Phase – Getting Your Ducks In A Row

The pre-collection phase is often over looked and much more important than the post-collection phase. It is the foundation for the collection. This is the fact gathering and organizational portion.

This phase includes the initial fact gathering on the business. Your business should have an in-take sheet whereby it gathers all important information from the other business. Some of my clients even go as far as running credit checks on the business or getting personal guarantees from its senior members.

For contractors, suppliers and equipment lessors that I represent, this pre-collection phase is essential to keeping the accounts receivable low. This phase also includes sending out notices and filing liens, in a timely manner and properly. All of these essential elements make the post-collection process much easier, more efficient and most importantly successful. The old adage that I preach, is an ounce of prevention equals a pound of cure.

Finally another important aspect of the pre-collection phase is a well written contract between you company and your business client. This contract should have specific default and attorney fee provisions.

Collection Phase – It’s Time To Get Paid

Now your company has all of its intake information, gathered credit reports, personal guarantees, sent your notices, filed your liens, and have a well written contract, but your business client refuses to pay on its obligation to your company, what do you do?

There are a few options here and  only one good solution. Your business could write off the debt, it could try to collect internally, hire a debt collection agency or contact an attorney to collect. Obviously I’m biased here, but I do see this often. Writing off the debt is never good. Collecting internally can be okay but its slightly less successful than a debt collector. Attorneys can do all of the following steps which make the percentage chance of collection go up.

Your commercial debt collection attorney has a number of weapons at his disposal to collect on the outstanding debt. Many of them have time delays built in by law, which slows the process. First is to send a demand letter which includes the Louisiana Open Account Statue language. This is another avenue to get attorney fees and costs associated with the debt collection.

After the demand letter is sent out and thirty (30) days elapse, then its time to file suit against the debtor. Many businesses balk at this option because litigation can be costly and risky. Depending on the size of your debt, you attorney will likely take it on contingency which will minimize the litigation costs. From there your attorney will get a judgment, either by default or after trial.

Once the judgment is obtained, there are a number of possible means of collection. The attorney can examine the assets of the debtor, in a judgment debtor rule hearing whereby the debtor will be sworn-in and give testimony as to what the business owns. Further, the attorney can garnish banking and physical assets of the business. The judgment will be good for ten years and can thereafter be reinscribed. Once a judgment is granted collection chances go up.

Conclusion

In the end, some debts are simply bad and cannot be collected. Others, however may just be tricky or require persistence. Having a good commercial debt collection attorney at your side will greatly increase your collection rates and keep your accounts receivables low.

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Mediation! New Service Available at Wolfe Law

Seth J. Smiley, partner at Wolfe Law Group, LLC and author of ConstructionLawMonitor.com is now a formally trained mediator. New Orleans just hosted the AAAU’s (American Arbitration Association University), Essential Skills for the New Mediator workshop in downtown, hosted by Neil Carmichael.

Why would parties want to mediate a dispute instead of going to court? That answer is easy, yet has many factors. The most important are that mediation is less expensive and much more efficient compared to litigation. But the most important factor is that the parties control their own outcome, rather than a group of strangers (jury).

So if you are in a dispute and are looking for an economical, logical and swift conclusion that is mutually agreeable between you and your adversary, then mediation may be just what you are looking for. Contact the Wolfe Law Group, LLC for more details.

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Eviction – Get Out Of My Property!

Here in Louisiana as is the case in many states there is no “self-help” with regard to Landlords evicting an unworthy, lease breaching tenant. Evictions can be a prickly subject and even more difficult when you have a tenant who will simply not vacate the property. When it comes to commercial property and leases, there are very strict rules that must be followed in order to have a tenant kicked out.

Eviction proceedings are ones that are considered summary proceedings here in Louisiana. These are ones that can be conducted much faster than an ordinary proceeding. See La C.C.P. art. 2591. Unfortunately this is not always the case and the Judge may use his discretion to retard the progress of the action.

Depending on the type of lease that Landlord and Tenant will determine how the lease may be terminated and eviction proceeding started. Termination of a lease is governed by La C.C.P. art. 4701 et seq. A helpful aspect for a Landlord to put into his lease, is that La C.C.P. art. 4701 notice is waived, therefore the Landlord will be able to institute eviction proceedings immediately upon default or termination of the lease.

The law has specific definitions for all the parties involved with a lease and eviction. These definitions are spelled out in the code at La C.C.P. art 4704. Terms such as Lease, Lessee, Lessor, Occupant, Owner and Premises are literally spelled out by the code. This is helpful to determine who the parties are.

If the Landlord is awarded possession of the premises by a court, and the tenant does not remove itself from the premises, then a Warrant will be issued to have the sheriff remove the tenant from the premises. This is a very serious penalty. See La C.C.P. arts 4731 and 4733 for more on this procedure.

Landlord / Tenant relationships can be very frictional at times. Most of the time the parties get along and there are not issues. In the small majority of the time where there are disputes, the lease will control. Further, the eviction proceeding is where the parties will have their day in court. I have dealt with a number of lease disputes here recently, and none are easy by the time they get to me. Its important to have a good working lease and take into account the rules to get the tenant out.

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