California Debt Collection Attorneys

Trying to collect your own corporate debts in California can be a challenge. You may not receive substantially better results by contracting with a standard collection agency. When you choose to use the services of a debt collection attorney instead, you’ll have the advantage of the best recovery process available. The commercial debt recovery firm of Stevens and Ricci has a 72% recovery rate and can usually provide results in less than 45 days. Compare these numbers to the much lower 28% rate that the typical collection agency offers and the much slower collection time. If your business is located near Los Angeles, San Francisco, or Newport Beach, call our offices today to start the corporate debt collection process.

The Business Collection Attorney Difference

Whether you’re operating a company in Sacramento, CA or San Diego, CA, hiring a collection attorney will make a big difference to your cash flow. While collection agencies often miss critical opportunities, debt collection attorneys take advantage of every possible method to collect your debt. A standard debt collection agency will make a few phone calls. They may quickly give up when they don’t speak to someone or receive a response to their messages. In stark contrast, the business debt collection team at Stevens & Ricci will stop at nothing to locate the debtor and begin negotiations. Our national support network includes collection attorneys in every state as well as private investigators. While we concentrate on pre-litigation services, we’ve found that a discussion with a licensed collection lawyer carries much more weight than a phone call from a collection agency representative. Just a hint of a lawsuit is usually enough to begin the payment process. When you use Stevens & Ricci’s services, you’ll be able to leverage the combined experience of expert collectors and lawyers for the very best results. Call our Anaheim or Oakland offices today to discuss how we can help in your situation.

California Makes Corporate Debt Recovery a Challenge

Whether you’re operating from the San Jose, CA or Santa Ana, CA areas, the laws are not always on your side when you’re trying to collect money that is legitimately owed to your company. To garnish a bank account, you must first obtain a judgment and a writ of execution. Next, the sheriff or court marshal must deliver the writ to the bank before collection can commence. While you can collect your entire debt from the bank account if the funds are there, the time lag between obtaining a judgment and delivering paperwork to the financial institution will allow your debtor plenty of time to empty all of their accounts. If you use the business collection attorneys provided by Stevens and Ricci, they will usually be able to begin the payment process without the need to go to these drastic measures that are often unsuccessful.

The Stevens & Ricci Difference

The collection lawyers in our network will provide numerous additional advantages to your business debt recovery needs. In addition to outperforming the collection agency in virtually every case, they also have knowledge and authority that isn’t available to those outside the legal arena. Collection attorneys can file motions with the court to force debtors and their agents to appear and disclose sensitive financial information. When a debtor obtains legal representation, most collection agencies will immediately give up. Our commercial debt collection attorneys welcome this development. We will seek out their counsel to start more advanced negotiations. The following sections provide even more strategies that a normal collection company would never consider trying.

Principal Identification

The theories of liability and alter-egos can be successfully used by debt collection attorneys to collect debts from the owner of the business. Much of the corporate debt that goes into collection is fraudulent. Sometimes, a dishonest person will run up debt in the corporate name, and then close or sell the office without filing bankruptcy. By hiding behind the corporate veil, the debtor has put the creditor in a poor bargaining position because there is no personal guarantor, only a failed corporation. The theory of liability will often allow the debt collection attorney to pursue the principals. The alter-ego theory can also be used to collect debts in these situations. When a business owner uses non-corporate funds to pay for business expenses, the attorney can argue that the business owner personally owes the debt because the corporation was illegal.

Consent Judgments

When a debtor can’t pay in full, they will often agree to a short-term payment plan. The debt collection attorney may be able to strengthen this agreement by creating a consent judgment. If the debtor can be persuaded to sign it, the creditor will be able to obtain an immediate judgment if even one payment is missed. This process allows the debtor’s bank account to be seized without the need to spend additional time or money in the courtroom. In most cases, we already know the banking information from previous documents and can immediately seize the funds to pay the debt. A consent judgment dramatically increases the chances of payment for our clients and puts them in a better position than most secured creditors.

Business Sales

In the event of a full liquidation, most collection agencies would be at a loss. The same would hold true for a bankruptcy, acquisition, or merger. A commercial debt collection lawyer can often obtain the buy/sell agreement from the owners or their agents. Many of these documents provide set-aside provisions or reserve allowances for paying secured creditors with open balances.

California Case Study

One of our clients sold surgical equipment to a surgery center that operated in California. Soon after the sale, the surgery center closed its doors, disconnected all phone numbers, and left no further contact information. Due to the fact that the surgery center was a corporation, no personal guarantor was available to pursue for the debt.

When our client spoke to another vendor that was owed money by the surgery center, they were told that a collection agency had advised them that the debt was uncollectible because no one could be reached. Our client decided that there must be a way to collect and contacted one of the Stevens and Ricci offices located in California.

Our collection attorney began by talking to sales representatives at both our client’s company and the other vendor’s business. During the interview process, it was disclosed that a local hospital administrator was a friend of the owner of the failed surgery center. From this contact, we received the name and number of the owner’s private medical practice.

During a phone call that reached the debtor personally, we found out that they were reorganizing the surgery center and planned to reopen as a new corporate entity with new investors. We convinced the doctor to sign a Letter of Responsibility for the purchased equipment.

In this case, the debtor did not have a legal responsibility to pay the original debt, but we were able to recover the full amount due with interest. Our sensitive treatment of this case allowed the debtor to retain his reputation, and he remains one of our client’s valuable customers to this day. The outcome would have been very different if our client had relied on the advice of the collection agency.

The first thing is to realize that A/R balances over 60 days old do not pay voluntarily. Something has to happen on your part. Unfortunately, accounts receivable is not like fine wines or cheeses – they don’t get better with age. So you’re going to need systematic follow-up using solid and proven letters and call tactics. Studies show accounts payable departments pay in priority fashion. What this means is that your collection process (invoice, follow-up fax, calls, etc.) must compete with your customer’s other vendors for the next available A/P dollar.

Don’t Be a Bank to your Customer - You’re a BUSINESS, Not a Bank

If you’re a vendor-lender, I’m going to show you how to work your receivables, manage your cash flow, and cut you’re A/R department costs. Your customer calls this Trade Creditor Financing, but to you it’s called excess invoice float. And it’s costing you money. You’re a vendor lender carrying past-due invoices interest free.

Unfortunately, this is what trade credit has evolved into. I’m going to show you how to control it, manage it, AND THEN actually profit from it.

Visit the Stevens & Ricci Resource Center for access to pre-packaged collection systems & strategies, including the renowned IRS Collection System©. If you have questions or comments, Ben can be reached by email at bricci@stevensricci.com or by phone at 888-722-1611.

At some point every business will encounter this problem: the customer who refuses to pay. You’ve tried every tactic at your disposal, but to no avail. The account is still outstanding and the customer isn’t paying anytime soon.

What else can you do prior to placing the account with a collection agency? You can have the IRS help you—in a round about way—to get your customers to pay.

But don’t go calling the IRS just yet. However, it is possible to have them help you. And you can thank a very innovative debt collection company—Stevens & Ricci, Inc.—for making the strategy called the “IRS Advantage” available to everyone.

“At one time I was a very frustrated credit manager,” says Ben Ricci, founder of Stevens & Ricci, Inc. “I was working for a large industrial lighting company that had a hefty amount of overdue A/R. I wanted a way to clear up the A/R fast, so I developed a collection strategy that would (in a sense) have the IRS help me make the collections…..and it worked, better than anybody could have imagined.”

The collection strategy works on the premise of reporting the debt as a loss. The IRS will view this as income to the debtor. It’s a well-known fact that the IRS routinely runs computer matches of 1099s against your customer’s tax filing.

But the key to the whole strategy is this: a pre-formatted IRS collection letter. Created by Mr. Ricci, the letter uses a powerful combination of accounting principles and debtor psychology. Once your debtor realizes that the IRS could be examining their tax statement a little more closely, you will be surprised how quickly a check will arrive in the mail.

Angela Tomassetti, a Controller at A.R. Fuels, Inc. has used the strategy with great success. “I Mailed 25 IRS collection letters based on this program—15 paid right away without even a follow-up call. These were our most stubborn accounts given one last chance to pay.”

The strategy is powerful, and Mr. Ricci has made it available to everyone. The IRS Advantage comes with the collection letter, step-by-step instructions, pre-formatted MS Word® files, a program example, IRS Form W-9, and a guarantee that this strategy can be used successfully by your business.

This changes the rules of the game. It could be the single most powerful collection tool ever created for stubborn customers who won’t pay.

You can’t beat having the IRS on your side in a collection matter.

About the author:

Ben Ricci develops and offers innovative strategies for businesses to improve working capital and operating cash flow. Discover new ways to speed collections, slash bad debt and lower overall credit costs by up to 60% at the Stevens & Ricci Resource Center or call 888-722-1611.

The first thing you should do depends on how you heard about it. If the bankruptcy is unconfirmed (ie: your customer tells the collector they have filed for bankruptcy or the sales rep hears from their contact they have filed), you should go to the PACER website to verify the filing. Refer to the Product Review for PACER (in this email or at the Resource Center).

If you received a Notice of Commencement from the debtors’ attorney, you may want to contact that attorneys office for more information.

Once a bankruptcy is confirmed, the PACER site can provide you with the following:

- Complete contact information for debtors’ attorney.

- Case summary including date filed, nature of debt, trustee information, and status

- List of other creditors

- A copy of the formal notice

- Schedule or docket for a list of hearings and dates of all steps in the process

The majority of business bankruptcies are Chapter 11. If you are owed a substantial amount of money, the following guidelines will help you to optimize your recovery.

1. Do I continue selling to this customer? Some creditors automatically refuse to sell to a customer in Chapter 11. This can be a great opportunity to make back some of your losses. Find out if there’s debtor-in-possession (DIP) financing available. Base your credit decision on those numbers and if you decide to sell, set up a new account for the DIP entity and make the terms Net 15.

2. Consider your volume and margins. Whether you sell post-petition or not depends on each of these six factors including your appreciation for risk with the particular customer and what your margins are with them. Have you made enough money historically so that the current bad debt associated with the pre-petition is minimal?

3. Call the customer. It’s always a good idea to confront the customer directly and immediately, especially if it’s a major account and there’s some relationship with the decision makers. Ask them what’s going on and what their intentions are. Try to get a reading on whether they’re trying to come up with a reorganization plan or if this is just a holding pattern until they figure out how to liquidate. The biggest risk is always that they convert to Chapter 7 and liquidate. The best information comes from direct conversations with the customer and prior knowledge you have about the company.

4. Why did they file? Perhaps there were specific issues that caused the filing not related to operations. Let’s say for example a company is viable and making money, but they had some leases or specific debt issues they used bankruptcy to resolve.

5. Find out who the major creditors are. Ask the debtor directly for a list of their top 20 creditors. If not, you can obtain them from PACER once the schedule is filed. Then contact a few creditors to determine their strategy. See if there’s any interest in getting involved in a creditors’ committee.

6. Determine a strategy. The biggest question is whether you think the customer is going to liquidate the business.

The last thing you want is to have to explain to top management why the company lost money selling to a Chapter 11 account. If you’re going to sell to them on terms, make sure it’s well thought out as per above. Otherwise, it’s cash in advance or no sale.

Not under federal law because creditors usually elect not to go through the expense of challenging it.

However, bankruptcy does not prevent the creditor from trying to get the State Attorney’s Office to threaten prosecution to force restitution on the NSF checks. If the prosecution is by a District Attorney, Attorney General, or any law enforcement authority of the State for a criminal action, then it will not stop prosecution for a bad check.

When your debtor files a bankruptcy case, there is a stay against any attempts to collect a debt from them. When a bankruptcy petition is filed, Bankruptcy Law imposes “the automatic stay” which is an injunction on all collection actions and which prohibit further collection efforts on debts that came about prior to the bankruptcy filing. This “automatic stay” is one of the primary reasons many people file for bankruptcy.

Although the “automatic stay” is a very powerful part of Federal Bankruptcy Law, the “automatic stay” does not extend to proceedings by the State or any Federal governmental agency pursuant to its police powers. More specifically, any criminal prosecutions which enforce criminal laws are not subject to the automatic stay of bankruptcy.

The Bankruptcy Court treats prosecutions of bad checks as criminal proceedings and not attempts to collect debt as long as the actual purpose of a bad check prosecution is to enforce criminal bad check laws. Since a bad check prosecution isn’t meant to pressure the debtor into paying a debt that could otherwise be discharged in a bankruptcy the automatic stay of bankruptcy will have no effect on bad check prosecutions which enforce criminal law.

You could pursue collection of the bad check through the DAs office directly or attorney general in the jurisdiction of the debtor.

For more on bad checks, including an excellent bad check letter and what to do if you receive a bad check, check the Stevens & Ricci Resource Center.

Keep in mind though that you don’t want to go to court, you want to collect the monies owed. The Final Demand Letter sells the need to pay while it fulfills legal requirements. A good letter results in payment in as many as one-third of all cases, probably because the written word is far more powerful than speech at this stage of the game.

Think about the times you found yourself embroiled in a heated collection situation. After exchanging angry words – maybe even a lawsuit threat – what happened? Chances are nothing. For whatever reason, you didn’t pursue the claim.

Things change when you write a demand letter. Lay out the reasons why the other party owes you money. State that, if you fail to get payment, you will go to small claims court or turn the account over to a collection agency. Now, instead of being “just another bill collector voice on the other side of the phone,” you and your claim take on a sobering realness.

The other party must now confront the fact that you won’t simply go away, but plan to have your day in court or unleash agency collectors. They will have to expend time, energy, and money. As long as your position has merit, the chances that the other party will pay all, or at least a portion of what you demand, just went way up.

When you write your Final Demand Letter, keep the following points in mind whether or not you actually intend to follow through with small claims court action. (Refer to the sample collection letter.)

• Firm Opening: Grab their attention and get right to the point.

• Heavy Language: Nothing sets a serious tone better than a reference to some fine print or legalese in your contract or work order, especially if signed by the customer.

• Payment Demand: Say exactly what you want. Ask for a specific amount of money to be paid by a set date, or for some other specific action to be performed.

• Consequence: Towards the end of the letter, state your intentions and give your customer a potential “out.” (i.e., pay now and preserve your credit rating.)

• Close: Be polite and professional, avoid personal attacks. You want the other person to make a business decision: What are my risks of losing? How much time and expense does a defense take? Usually, the other party will decide it makes more sense to compromise.

• Enclosure: Enclose a copy of your invoice and/ or work order. In an involved situation, review the history of the dispute. If you do end up in court, the judge or hearing officer who doesn’t know the facts of your situation will read the letter.

• Mail: Send the letter by certified mail. This assures your customer that you mean business and provides a record of receipt.

• Fax: Send the letter via “Receipt Recorded Fax”. After faxing, print a confirmation report from your fax machine and attach it to your copy for proof.

TECHNICAL TIP: If your debtor is a corporation, mail or fax the letter to the Statutory Agent (call Secretary of State’s office to obtain), copying the debtor. If not a corporation, mail or fax the letter to an owner or partner, not the manager or clerk. Pull your credit application if you have one on file to find the names of owners, partners, corporate officers, etc. You want MAXIMUM IMPACT, and WHO you send it to can be more important than WHAT you are sending.

Your Final Demand Letter should contain the following elements:

Firm Opening

Heavy Language

Payment Demand

Consequence

Close

Download a copy of the sample template letter at the Stevens & Ricci Resource Center at http://www.stevensricci.com/tools_products.html

It is generally assumed that a phone call is considered the best first contact when a customer becomes overdue. Unfortunately, phone contact carries with it a lot of time and effort. The seemingly endless calling, being left on hold, leaving messages, returning messages, etc. that is inherent in this method distracts from the core effort of running the business.

However, it is possible to use a collection letter as the first contact, and get results similar to phone contact, but without the cost and time involved with using the phone.

The letter just needs a few important components.

First, treat the first collection letter as a request to the customer to explain why the payment is late and make your request for payment a secondary concern.

This does two things:

(1) It gives the customer the benefit of the doubt and suggests your interest in the customer is more than the value of the invoice. It leads the customer to believe you hold a genuine interest in their financial health.

(2) Some customers may have been holding off on payment in order to discuss a dissatisfaction with the product, service, or delivery. In cases like this, the customer will not contact you and instead will wait until you contact them. Again, it gives the customer the benefit of the doubt and treats them with the courtesy to which they are entitled.

Secondly, the first collection letter should provide an easy way for the customer to answer your inquiry.

An effective way to do this is to place a checkbox at the bottom of the letter with a list of the most common reasons for late payments. The customer is invited to mark the appropriate box and then return that portion of the letter to you. The point is to invite the customer to act and open a dialogue with you about the account.

Note if your business has an interactive website where customers can pay their bill online, it is very easy to set up an electronic version of the checkbox that can instantly beam the customer’s response directly to you via email.

If that is the case, the bottom of the letter should include a simple URL (”web address”) that the customer can go to give the requested feedback. Preferably, the electronic checkbox should be accessible from within the customer’s already existing online account.

Finally, place the invoice information at the top of the letter in the subject field and leave it out of the body of the letter.

This reinforces that this letter is a courteous reminder of an amount owed rather than a “demand” for payment. Remember, at this stage of collections, your contact with the customer is focused on being cordial and helpful.

To get an idea of what your letter should look like, a sample first collection letter with all of these elements can be downloaded at the Stevens & Ricci Resource Center. Link >> http://www.stevensricci.com/tools_products.html

Conclusion

If you apply the elements described above to your first collection letter, you should see a dramatic increase in the effectiveness of your collection efforts, while saving time and money over traditional telephone contacts.

The firm of Stevens & Ricci uses a combination of collection attorneys and commercial collectors working together to provide collection results from two to three times higher than average. Following is an actual case study of a collection account to demonstrate specifically how this process not only produces superior results, but cannot be replicated by agency collectors.

Missed Opportunities

Stevens & Ricci does things that collection agencies simply cannot do. Consider this recent example of an account that was collected for a medical equipment client of ours:

My client sold surgical equipment to a surgery center that closed their doors, all phone numbers disconnected. They were a corporation with no personal guarantee. One of the vendors listed on my client’s credit application assigned an account to their collection agency against the same debtor for disposables. They closed it out as uncollectible because they couldn’t reach anyone.

Look Under Every Rock

What did we do?  First, we called and interviewed the sales reps for both our client and the vendor company. We were given the name of a friend and associate of the debtor, an administrator of a large hospital group, who in turn gave us the name and phone number of the debtor’s private medical practice.

My collection attorney then spoke with the debtor directly and discovered that they were re-organizing under a new investor group and would soon re-emerge as a different entity.

We were able to convince the doctor to sign a Letter of Responsibility for our client’s equipment which was then paid for in full with interest by the new entity. It’s important to note that the debtor had no legal responsibility to pay for these invoices. The reason we got our client paid had more to do with investigative, negotiating and deal-making skills than collections.

Teamwork and Synergy

We use two people on each large balance account (over $10k) – a collection attorney, and an investigative collector. We can afford to spend up to ten man-hours per account whereas a collection agency is limited due to volume. The biggest reason for non-payment by collection agencies – missed opportunities.

Don’t miss the opportunity to have us represent you on your next large balance claim. We pursue debtors in all 50 states. Call Ben Ricci at 888-722-1611 or logon at www.stevensricci.com for more information.

The thing is that profits are realized only from paid sales. Until the payment is received, it is simply someone’s opinion that the money will eventually go into your company’s checking account. An expression I like to use, “Profit is opinion – cash is fact” applies here. The sale is a key event, but it is not “high-five time” until the money is collected.

The problem is that when it comes to receivable collections, you are in a race against time. Receivables are like produce. Just as lettuce loses value the longer it sits on the shelf, the longer an account goes unpaid the more likely it is that you won’t collect the money. The older it gets, the more likely it becomes that it will eventually come off your balance sheet as a direct hit to profit on the bad debt expense line.

Please don’t let your people procrastinate on this. The fact is that more businesses fail for lack of cash than for want of profit, making it most important that everyone in your organization is in full agreement that the sale is not finished until the money is collected.

Hopefully everyone in your organization agrees that putting money into the company’s checking account is the purpose of all sales activity and everyone is on board with good collection processes, including the most important element, the strict application of good procedures in granting of credit privileges.

Once you cross the threshold of actually giving a customer a receivable account, successfully managing them requires:
•    Prompt billing
•    Good collection letters and phone scripts
•    Knowing when to quit working troubled accounts

Today’s business world places customers in the highest regard with their satisfaction and retention the prime element of success. Building a loyal customer base with quality products and services and attention to their needs has become the common strategy for staying competitive in the business world. Without satisfied customers there would be no one to purchase our products and services. But, in my opinion the term “customer” is really incomplete – the correct phrase should be “paying customer.”

Please consider a simple fact: a customer is not a customer until the money is in the bank.

For help with the accounts receivable collection process, visit our resource center for tutorials, tips, and downloads. Also subscribe to our complimentary Credit Tips & Trends monthly email at stevensricci.com

The natural progression of the collection process for a business has usually been something like this: send a “routine” reminder bill, followed by a “routine” phone call, then an “aggressive” reminder bill, followed by the “aggressive” collection letter stating the account has been (or will be) referred to a professional collection agency.

However, each of these efforts are backed only by the will of the creditor-business; that is, the debtor knows that some businesses, especially small businesses, will eventually give up and drop the threat of collection as time wears on. After all, the seller isn’t in the collection business and its efforts need to be directed to growing the business and not chasing down one or two bad accounts.

That anticipation can cause a debtor to ignore customary collection efforts. Non-payment can also result from a debtors “just doesn’t care” attitude for the possible ramifications of non-payment. Whatever the reason, today’s debtors are savvy and very good at stalling or avoiding payment. The response, then, is to implement a more comprehensive approach to combat delinquencies and get the debtor to care about the ramifications of non-payment.

Enter IRS Reg. S1.61-12 regarding the discharge of indebtedness. Regulation S1-61-12 states that a debt that is not repaid can be reported as a loss by the creditor, thereby making it taxable income for the debtor. Turning a debt into taxable income means the IRS gets interested in both the delinquent bill and debtor.

Reminding the debtor that they can be reported to the IRS for failing to pay the debt usually gets their attention. Even the most delinquent debtors can develop second thoughts about avoiding the debt when there is the possibility that the IRS will take a closer look at their tax return. Alerting the debtor to the IRS consequences of not paying the debt can be done a variety of ways.

Generally, once an account becomes overdue, a collection letter should be sent that describes the IRS rule on uncollectible debts. The letter should tell the debtor that unless payment is received immediately, you will be obligated to write the debt off and report the amount of the debt to the IRS as income for the debtor.

The IRS is the most feared collection agency imaginable. When all else has failed to get a debtor to pay, use the power behind the IRS rules to get dramatic results for your company’s collection efforts.

About the Author

Ben Ricci develops strategies for businesses to improve credit and collection operations. He is founder and CEO of Stevens & Ricci, Inc. and personally developed “The IRS Advantage,” the only turn-key program designed to easily use IRS Reg. S1.61-12 to help business owners resurrect “uncollectible debts” and get the overdue client to pay. To learn more, call Ben at 888-722-1611 or logon http://stevensricci.com