Wednesday, July 21, 2010

Collection Tip: Partnerships - Who is Responsible?

Partnerships - Who is Responsible?

If a partnership - where two or more people co-own an unincorporated business - goes out of business and still owes you money, you may think that money is uncollectable.

Legally, all partners in the business are responsible to pay 100% of the business' debts.

Consider the following example:
  • Two people are in business together.
  • The partnership goes out of business.
  • Partner 1 goes bankrupt.
  • Partner 2 still lives in the area and has gone into business for himself.
In the case described above, Partner 2 is still collectable and is 100% responsible for debts incurred by the partnership.

The Bottom Line:

Don't let partnership owners use going out of business as an excuse not to pay you back. As long as the company was not limited or incorporated, the owners are 100% responsible.

Monday, July 12, 2010

Collection Tip: The Dangers of a Poorly Worded Agreement

The Dangers of a Poorly Worded Agreement

Accounts are frequently submitted to us for collection that are needlessly difficult to collect due to confusing written or verbal agreements.

Here is how weak wording can - and often does - result in lost dollars.

Who owes the money?
Sometimes written agreements don't distinguish between the customer's company and the customer personally. We often discover that the party from whom we were instructed to collect, is not actually responsible for the debt. Not making it clear who is responsible results in complications that could render the debt uncollectable.

What is owing?
When credit agreements are worded in such a way that doing the math can lead to different amounts owing, the customer could derive a different balance than you have on file - even though you are both basing your calculations on the same information. In some cases, interest rates are stated in terms that are open to interpretation - are they annual? monthly? simple or compound? Make sure the agreement is clear on what will be owing at any given time.

When is payment due?
Generous settlements or payment arrangements are often discussed and agreed upon. However, believe it or not, the actual payment due dates are frequently omitted from the signed agreements. In these cases, a customer could claim ignorance regarding the payment due date or settlement offer expiry date. Remember that it's always best to include exact dates with whatever payment schedule is in the agreement.

Where is the payment to be made?
Difficult customers can twist and confuse any issue to their advantage. For instance, if goods are involved, be sure all parties are clear on where they are to be delivered - what address, at whose expense, etc.

Why do I owe the money?
Recently we had a collection account where the debtor produced cancelled cheques showing payments he had made prior to being sent to collections - payments which had not been applied to his balance with our client. Turns out that when he issued the cheques, he requested that they be put toward his brother's account instead of his own. Unfortunately, since our client didn't get that in writing, the debtor then had the opportunity to question why he still owed them money after his cheques were cashed.

The Bottom Line:

Anything in business that can be misinterpreted, will be misinterpreted by people who like to take advantage of poorly worded agreements. Complete and clear details go a long way toward preventing disputes and lost dollars.