Debt Collection Starts With Credit Applications and Commercial Terms So You Can Control Your Money
According to a survey conducted by the Federal Reserve Bank of New York in 2016,30 percent of all small businesses were financially healthy, 33 percent were stable, 27 percent were at risk and 10 percent distressed. The survey results indicated that nearly 37 percent of small businesses were financially unhealthy.
Small businesses encounter financial challenges due to a host of reasons, with less-than-perfect business credit being a predominant factor. As a result, they end up with a large revolving line of credit, which makes fund recovery often difficult and sometimes impossible.
As an experienced and knowledgeable commercial debt collection law firm, we at the Law Offices of Alan M. Cohen LLC believe that business owners should invest their time, energy and effort into making a comprehensive credit application before issuing credit to customers. Having a well-defined credit application that clearly states all the rules and terms can make debt collection more effective.
Simply put, a credit application should be a critical part of the credit extension policy of your business. It is a crucial document that legally may bind your customer to legally enforceable terms that assist our experienced commercial debt collection attorneys when it comes time for debt collection.
A Credit Application Sets the Foundation for Business Debt Collection
Besides being an information-gathering tool that helps business owners to decide whether or not to extend credit to potential customers, a credit application lays the foundation for debt collections as well. It plays a pivotal role and functions as a legal document in the event that a debtor defaults and litigation becomes necessary.
When setting the terms for debt collection, here are some crucial factors to consider:
- Terms and conditions for credit and sales that you want the applicant to follow and adhere to,
- Legal disclaimers that will help in conducting credit investigation and enable you to opt for litigation, without any prior notice if and when needed.
- A personal guarantee that serves as a safety net—helping you collect money from the guarantor in case if the debtor defaults.
Forum Selection Clauses: Control Where You Want To Sue and Be Sued
Forum selection clauses must also be clearly defined in the credit application. This helps ensures where you want to sue or be sued.
Waiver Clauses: The Rights That Can And Cannot Be Waived
Likewise, the debt collection process can become quite easy if you incorporate waiver clauses into your credit application. A waiver clause is a voluntary relinquishment or surrender of known right or privilege. These clauses must be set clearly so that the applicant knows exactly the types of rights that are being waived.
Secured Debt vs. Unsecured Debt
When developing your credit application and policies, you must decide whether your company will be offering secured debt or unsecured debt. Secured debt refers to debt that requires a borrower to submit some asset as collateral. This may assist, that in case of default, the asset kept as collateral can be used by the creditor/lender for collecting their due payments.
On the other hand, unsecured debt does not come with the collateral backing the loan. These types of debts should only be given to borrowers with strong creditworthiness to minimize the risk of default. However, in case the borrower defaults, to obtain security the creditor must take legal action by initiating a lawsuit to collect the amount due or in the case of construction litigation, file a mechanic’s lien. A general credit application by itself is not sufficient to constitute a written contract for the purpose of mechanic’s liens.
Credit Application Information Is Indispensable To An Experienced Debt Collection Attorney
A well-constructed credit application with or without a signed personal guarantee and agreement on forum selection and waiver clauses is extremely useful to the experienced debt collection attorneys at the Law Offices of Alan M. Cohen LLC. Our Massachusetts-based debt collection lawyers use all if this information to assist in collecting your money from your debtor.
Our lawyers will select the best course of action, including pre-judgment and post-judgment debt collection tools to help you recover money from debtors who have failed to repay you in a timely manner.
At the Law Offices of Alan M. Cohen LLC, we have helped hundreds of clients across various industries with successful debt collections. Owing to our extensive experience in business debt collections, we can help you aggressively and relentlessly collect your outstanding debts! If you are serious about getting paid, let us help you establish the strongest credit application that we know how to provide so that when your customer goes bad, you have the best chance of getting paid. Call 508-763-6604 or email us to have the experienced commercial litigation attorneys at the Law Offices of Alan M. Cohen LLC review or create your commercial paper with collections in mind.