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Preventing Losses

In The Beginning

With every customer to whom you extend credit, consider the impact on your business if the customer doesn’t pay. It doesn’t take too many nonpaying customers to create trouble for your business.

When the customer opens an account, get complete information about the customer: full legal name of the entity, banking reference and names of trade creditors.

Consider asking for a personal guarantee by the principals of small corporations: do you want to put your business at risk for someone who won’t personally back his business’s commitment to pay?

When Payments Lag

Cash checks promptly. Keep records as to when checks are received.

Condition future business on payment for the new goods and some reduction in the past due amounts. Payments that are “contemporaneous exchanges” are immune from preference challenge by the trustee, but without evidence that payments were for the new goods, rather than the old balance, courts tend to apply payment to the oldest charges. Selling COD is excellent protection against preference litigation.

Consider retaining a security interest in the goods sold until they are paid for.

Don’t let the threat of bankruptcy keep you from filing suit, if you think the account debtor has assets from which your claim can be satisfied. Talk to your collection attorney about your rights to a prejudgment attachment.

Don’t hesitate to accept payment on account because of the possibility that the payment may be avoidable as a preference if the customer files bankruptcy. It is not wrong to accept money genuinely owed to your business; neither is it wrong of the soon-to-be debtor to pay it. It simply may be recoverable by a trustee. Possession of the funds may not be forever, but it does give you negotiating leverage in a suit to avoid the transfer.

We encourage you to call 515-421-9068 or use our online contact form to schedule a free one-hour consultation with a lawyer who emphasizes on clear communication and cost-efficient solutions. We will review your situation and recommend an effective course of action.