Options to Collect Past Due Receivables

Options to Collect Past Due Receivables

By Bradley Hunt, Attorney

If you own a business and are owed money, especially if that amount is large, you know it can have an impact on your operations. Collecting past due receivables can be time consuming and frustrating. If a friendly reminder doesn’t work, what options do you have?

Federal and state laws limit how you go about collecting debts owed to you by individuals (the same rules do not apply to businesses). These laws prevent creditors from harassing or threatening consumers to attempt to get them to pay a debt; they also outline what you can and cannot do in pursuit of collecting the debt. We recommend you research the Fair Debt Collection Practices Act (federal) and review the North Carolina Debt Collection Act or speak to a business law or collections attorney before pursuing action.

Most businesses that invoice their clients allow a reasonable payment window (15 or 30 days, for example). When debts are not paid within that window, typical collection activities begin. These may include a friendly reminder via mail or email, followed by more forceful reminders and phone calls. When these activities have not gotten the debtor to pay, the creditor must decide how to proceed.

The amount owed will often be the deciding factor on the next steps taken. The location of the client may also make a difference. The creditor may decide not to pursue legal action if the amount owed is relatively small or the client is out of state.
Debt collection options include:

  1. Pursuing a judgment against the debtor. This can happen in small claims court (if the amount owed is under $5,000) or in district court for larger debts. If the judge rules in favor of the creditor, the judgment is filed in the county where the debtor’s property is and remains a lien against that property for a period of 10 years. In certain cases, a judgment entitles the creditor to levy against property to collect.
  2. Collection agencies may also be an option, especially for a smaller debt. They will pursue payment on your behalf for a portion of the amount owed. Before hiring a collection agency, make certain they have a good reputation and will follow the collection laws in North Carolina while acting on your behalf.
  3. If the debtor refuses to pay the debt because of a dispute with the creditor, a mediator might be an option to work out an agreement without going to court.
  4. Factoring is another option. Companies called “factors” will purchase the debt for a percentage of its face value. They then own the debt and will pursue collection as they see fit.

It should be noted that if the debtor (individual or business) files bankruptcy, you must cease all collection efforts. Generally, your only recourse in this case is to file a claim with the bankruptcy court.
Do not delay in pursuing the debt owed to you. There is a statute of limitations on debt collection in North Carolina; if you wait too long, you may be barred from collecting the debt. If you are unable to recover the monies owed, you may also wish to speak with a tax advisor to see if you might report the loss on your taxes.

If you are owed a large debt and have not been successful in recovering the amount owed, you may wish to speak to a collection attorney to learn your options and protect your rights.