GETTING PAID FROM
Brian L. Davidoff
good faith, you provide goods or services to a customer. You submit an
invoice. Thirty days pass. You receive no payment.
numerous invoices and notices, and you still arenít paid. You wonder if
you will ever receive payment, or if your customer is even capable of
business owners carefully manage credit terms and amounts, this scenario
happens regularly to many businesses. To prevent it from happening to
you, look for potential warning signs that indicate your customer is on
shaky financial ground, and be aware of legal options should the
outstanding debt continue.
One of the
clearest indications of financial distress is that your customersí
payments, which have always arrived on time, begin showing up late. The
first time could be an anomaly, but if it happens on a regular basis it
could signal trouble. Begin keeping close tabs on whether the customer
fulfills his or her commitments in a reasonable time.
contact their accounts payable department, listen carefully to get a
sense of whether the story youíre told is true. Occasional cash-flow
problems are understandable for any business, but the same excuse
several months in a row is a cause for concerns.
high-level individuals to get an exact date for a specified payment. If
you are in the same area, offer to have a messenger pick up the check to
make it more difficult for the customer to further delay payment. If
the customer canít pay the full amount right away, consider negotiating
a monthly installment arrangement.
red flag is that a key officer or other important manager at your
customerís company resigns, especially if it happens more than once in a
short time. They may be leaving the company due to its financial
attention to the industry involved as well as the overall state of the
economy. No company functions in isolation. Be alert to marketplace
changes that could impact your customer. For example, if one of its own
customers has gone under, that could cause financial distress. If the
customer has fallen behind in technology, product development, or
marketing efforts, it may be on shaky ground and, again, you may suffer
as a result.
of data is available about the financial status of a company. You can
for a fee, obtain a Dunn & Bradstreet credit rating report on the
customer. You can also ask your law firm to search for any judgments or
liens. If the customer has numerous judgments against it, that could be
a problem. If you file suit, you will be at the end of the line of
judgment and lien creditors.
customer is free of liens, you may have more leverage if you do sue
because you could be first in line to get paid. Also, if the customer
is a corporation, a limited partnership or a limited liability company,
find out if it is properly registered with the California Secretary of
State. If not, it is not allowed to appear in court to defend a lawsuit
that you may file. That information will also tell you who their
registered agent is for service of process.
has worked, what are your alternatives? One legal avenue is known as
the right of reclamation, which applies to all vendors that supply
goods. Under the California Commercial Code, if you have delivered
merchandise to a customer that you subsequently learn is in financial
distress, you have the right to take back the merchandise within 10 days
of delivery. If the customer has misrepresented its financial position,
then the 10-day limitation does not apply. If you decide to exercise
this right, you should promptly send the customer a letter demanding
return of the goods.
cannot reclaim the goods, you may need to file a lawsuit. Because a
trial will only take place many months later, a weapon of choice is to
file a writ of attachment at the same time as the lawsuit. It will be
heard, either the next court day (if it is an emergency) or 15 days
later, and if successful, the court can order the attachment of all of
the customerís assets (up to the amount of the claim) pending the
trial. This ensures that if you are successful at trial, there will be
a source of funds from which to get paid.
this legal firepower, creditors are often able to get prompt payment
from the customer.
seem like a strange question, but should you continue to extend credit
to the customer for additional sales? The answer depends on your
relationship with the customer, their importance to your business, and
how much risk you are willing to bear. You could change your credit
agreement by requiring payment in advance or COD for any future
purchases. Sophisticated advisors to debtors know that most trade
creditors are willing to take one ďhitĒ from a customer, provided they
can continue to do business.
line is this: If a customer owes you money, donít simply roll over and
lick your wounds. There are a variety of business tools, including a
powerful legal arsenal at your disposal, to help you get your money.
Brian Davidoff is with the law firm of
Rutter Hobbs & Davidoff
Incorporated in Century City. His practice focuses on
bankruptcy, insolvency and workouts of troubled companies.