There are a number of safeguards suppliers, credit managers and salesmen can exercise which will speed up the legal process and lower the overall legal expense associated with commercial litigation. Most of the ideas expressed in this article will not require significant changes in your present system but merely call for the application of increased awareness and an attention to detail.
First, one of the best ways to prevent unwarranted delays and costly litigation is to request specific information from your customers initially and devise a system of accurately recording and retaining this information. For example, most suppliers require credit applications to be completed by prospective customers but few require that all information be provided prior to opening an account. The supplier is primarily interested in the credit limit, banking information, and references. The suppliers emphasis on the initial financial information often results in the credit application being returned undated, with an abbreviated corporate name, a post office box rather than a street address, no social security number, or even unsigned. By accepting applications in the above condition you are furnishing your customers possible legal defenses if the business transactions were subsequently litigated for non payment, etc. Further you will incur additional expense in overcoming these defenses and/or locating a delinquent customer. Properly completing the initial application can eliminate many potential legal problems and also provide valuable information to be used to track delinquent customers should the need arise. Many suppliers do not require personal guarantees, however to do so can provide a supplier with valuable alternatives if a corporate account should default. It should be emphasized that all personal guarantees should be appropriately dated, witnessed and correctly identify the corporation making the purchase. By not requiring a personal guarantee to be fully and accurately completed you are, again, providing your customers with legal defenses which may be costly or even impossible to overcome. In addition, all personal guarantees should contain a paragraph requesting attorney’s fees if the debt is collected by an attorney. The attorney’s fees paragraph can request fees in several ways, but the most common are “reasonable attorney fees” or fifteen percent (15%) of the principal and interest due. Having the attorney’s fee paragraph in your personal guarantee significantly increases the likelihood of recouping expenses you will incur during litigation.
Again, the failure to properly obtain and record complete information during the application process often leads to difficult counterclaims or defenses after the initial collection activity has begun. In his or her attempts to advocate your position, the attorney faces the resulting difficulties mentioned above which ultimately cost you, the supplier unnecessary expenditures of time and money. More specifically, some of the problems which can and should be avoided range from assertions that “the application was executed after the account was opened therefore these statements should not be included” to contentions that “the signature on the personal guarantee is not the customers” or “someone else improperly filled in an incorrect corporation on the personal guarantee since customer X never personally guaranteed for that corporation” and “when were the application and personal guarantee signed since there is no date.” As you can see, requesting and obtaining the correct information provides you and your attorney the means with which to oppose and refute these claims.
By using a thorough credit application and personal guarantee and requiring that these documents be fully and accurately completed you can prevent the unnecessary expense associated with prosecuting your delinquent accounts. The attorney who handles a case where all the appropriate information is available and witnessed is in a significantly stronger position to settle the account or at least eliminate unnecessary delays and expense otherwise caused by the defense of what should be groundless claims. To summarize, I would suggest Building Suppliers follow the following guidelines:
1. Develop a thorough credit application including the following:
2. Always complete the credit application fully, and pay particular attention to:
3. Develop and use a complete personal guarantee including:
By incorporating these into your credit procedures you can minimize your risks, expedite the collection process and achieve maximum prospects for success for the lowest cost.
Mr. Busch is an attorney specializing in commercial and construction litigation for Busch, Reed, Jones & Leeper, P.C. in Marietta, Georgia