Collection is not a dirty word. It is a necessary and helpful part of any business. Revenue allows the business to operate and employ people.
Most people prefer to be paid, rather than not receiving payment for their goods or services. What do you do when your clients are not responding to the invoices or statements being sent?
If you are dealing with a residential tenant, a pay or quit notice and a Summons for Unlawful Detainer may be in order.
If you are dealing with an unpaid open account, then a demand letter and a General District Court or Circuit Court action may be the course of action. In 2011, the General Assembly amended Virginia Code § 16.1-77 to increase the General District Court’s civil jurisdiction to claims up to $25,000 exclusive of interest and any attorney’s fees contracted for in the instrument, which is the subject of the claim.
In open account cases, depending on the contractual relationship of the parties, the three (3) year statute of limitation for actions upon an unwritten contract or the five (5) year statute of limitation for actions upon a written contract may apply. The history of the open account is important in determining the starting point for the limitation time period. New charges or payments may change the starting point.
If your client’s indebtedness is memorialized in a written contract, the terms of the contract will govern. Credit applications often provide a written agreement setting forth a framework of rights for the parties. If you are not having clients sign a credit agreement, you may want to start using one.
If your client’s indebtedness is secured, you may be able to exercise your rights as to the collateral.
If the collateral is personal property, you may have the right under the Uniform Commercial Code to take possession of the collateral and sell it without judicial intervention. A creditor’s sale must follow the requirements of the Virginia Uniform Commercial Code. Va. Code § 8.9A-601, et. seq. sets forth the rights of a creditor upon a default by the debtor or obligor. You may be able to hold a private sale or a public auction of the goods.
If your client’s indebtedness is secured by real property, you may be able to foreclose pursuant to a deed of trust or to have the property conveyed to you by deed in lieu of foreclosure. Both actions would require a title search of the property before proceeding. You may want to consult a title insurance company to perform a title update and provide a quote for title insurance.
If you bring a cause of action and the Court awards you a judgment, then you still have to collect the judgment. A judgment and the collection of a judgment are not one in the same. You may still have to take steps to execute on the judgment to receive payment of it. You may need to file abstracts of the judgment in the jurisdictions in which the judgment debtor owns real property to be able to obtain a judgment lien against the real property. You may need to have the sheriff levy upon personal property or serve a garnishment to seek the seizure of funds.
The first step may be a telephone call to the client to attempt to work out a payment plan. The next step may be seeking good legal advice coupled with good business counsel from your attorney and counselor at law. Some of that counsel may involve setting up new credit and collection procedures. Collecting information at the beginning of the credit relationship may prove very helpful if one day you are seeking to collect on an account, contract, or judgment. Better procedures may make a difficult situation better than it otherwise would have been.
Also found on The Roanoke Star Sentinel