Law Offices of  
David Grossack, P.C. Call us at 617-965-9300


The credit and collections process should ideally begin contemporaneously with the start of the relationship with the customer. When the customer becomes a customer, notes should be made about the customer’s circumstances in anticipation of possible collection problems. Any great customer can suddenly overnight fall into difficulty and became a major collections headache.

The very first step taken in anticipation of this, whether yours is a retail or business to business company, is the credit application.  Credit applications should include a means of obtaining the credit history of the principals of a company even if it is a separate legal entity. Their date of birth, social security number and references are just as important as those of the company itself for a number of reasons, not the least of which is that it will tell you some indication of how responsible they are in general.

You want to know their legal structure. Are they a partnership, limited partnership, corporation or what have you. Are they using a fictitious business name. Who is the landlord? How long have they been at the present location? Who are their suppliers? Who are their bank references? You’d better get an account number so it will be easier to attach them after they stiff you. When were they incorporated? Where? Why not find out on the application who their major customers are? There’s a very good reason for this I’ll soon get to.

Your own salesmen are a great source of business intelligence. When a company is falling apart, the visiting salesmen have clues first. They can be prompted to tell you when to stop extending credit. They may listen to employees grumble, bosses and fellow salespersons complain about business and perhaps pick up news about plant closings, layoffs, disputes and other events which might cause you to tighten credit.

Credit is a marketing tool. It helps you bring in business, but in the final analysis the business brought in by errors in the extension of credit can be fatal, so the last thing I would say on this is that it is better to err on the side of caution.

Your company’s application for business credit should include a personal guarantees section where an individual signs to be responsible for the debt in the event the company fails to honor the debt or becomes insolvent.

You want to know if the company owns any real estate. You may want to quietly investigate them to see if their equipment or inventory have any UCC liens. You may want to hire a company like Dunn & Bradstreet or Investigative Research in Sharon, Massachusetts to do a background investigation before you extend any serious credit.  This is what you do in anticipation of a problem, and in any given company a certain percentage of customers are going to be problem customers.

What does an entrepreneur do when things get bad with a customer?

A customer who is 60 days late in my view is a customer who is a problem. In my view a customer who is 60 days late probably doesn’t care that your bills are coming in every 30 days and that puts him in a special category.

You can do several things as an entrepreneur with a delinquent customer.

1. You can send letters to the folks who owe you money. You can cut off their credit, discreetly threaten to refer the claim to a collection attorney or agency. Please remember that collection agencies can do little but refer the claim to a real lawyer, make vague threats by phone call or letter and not much else. They are constrained from quite a few unpleasant practices by the Federal Fair Debt Collection Practices Act. So now professional debt collectors, including lawyers, place a mini-Miranda warning on their letters saying that this letter is an attempt to collect debt. Any information obtained will be used for that purpose. Debt collectors cannot call at unreasonable hours, cannot threaten suit if they don’t mean it and cannot reveal the debt to others or threaten to do so.

For reasons of potential liability, it is a risky practice to call a consumer debtor at work. If a debtor requests that he not be called at work and you continue to call there, you can face action under the state attorney general’s regulations. If push came to shove in such a case, every co-worker would be available to testify how your calls caused the debtor emotional anguish and how he/she pleaded with you to stop calling and you didn’t listen.

Another aspect of the Fair Debt Collection Practices Act is the requirement that a debt be validated upon request of the debtor within 30 days. Failure to do this can precipitate liability. I have seen reported judgments of $1,000.00 for failure to validate. There are risks of class actions in this area and the requirements are in fact technical, so if you have a collector working for you, or are a lawyer doing collections, you must study the Federal regulations and state regulations at Mass. 209. CMR 18 or risk getting hit with all kinds of counterclaims and possibly class actions or even actions by the Federal Trade Commission.

A lot of folks in business have expressed the view that it is just not good public relations to sue over a bad debt. I never thought that this was a sensible policy. If people are going to take advantage of you, you don’t want them or people who think like them as customers, and sometimes a lawsuit is absolutely necessary.

2. You can make phone calls to the folks who owe you money. I would be careful to call at reasonable hours and avoid Sundays and holidays. Do not call before 8:00 am or after 8:00 p.m. and be extremely polite. You must not threaten suit unless you actually intend to bring suit

3. You can refer overdue accounts to a collection agency, but remember that the collection agency has limits on what it can do. They don’t sue, they don’t attach. Collection agencies can only send letters or make calls , and you would be surprised how many have rude and bullying people make calls for them who can precipitate liability for their clients.

4. You can arrange for their claims to be brought into court by referring it to legal counsel, or learn pro-se methods yourself.

If you are familiar with this process, then you are likely to know what I am going to say. Strangle the debtor by grabbing its assets before the debtor goes out of business, before it files bankruptcy, before your best witness dies, before the debtor company merges and it’s a massive hassle to sue, and certainly before the statute of limitation expires. (6 years here in Boston, MA)

If you are legal counsel, screening cases on a number of grounds is vital for a number of reasons, not the least is that you want to spend your time on winnable cases.

Make sure you have all the elements of an enforceable agreement prior to bringing suit.

1. Was the contract between two sober persons of sound mind and legal age?

2. Was the contract for a lawful purpose?

3. Was there proper consideration?

4. Was there an offer and acceptance?

5. Was there performance or was there a breach or partial performance and partial breach?

At this point, if the customer has not done what they were supposed to do, and the answers to the questions are yes, you mostly likely have a case. Call the Law Offices of David Grossack now and protect your rights!

Contact Us:
Attorneys | Practice Areas | Articles | About Us | Contact Us | Home LAW OFFICES OF DAVID GROSSACK © 2010. | Web design by OpenVine Solutions