These days, the business climate is best described as guarded. Borrowing costs have increased due to recent interest rate increases. Generally, when businesses generate revenue and experience positive cash flow, I am not too busy in my business practice. However, lately, I have begun to see a shift with clients and prospective clients. Many businesses depend on high invoice collection rates to ensure expenses can be paid. When collection rates begin to dip, businesses sometimes experience a crunch between expenses and having the cash to pay them. Usually, short-term borrowing and/or credit cards allow business owners to bridge the gap between revenues and expenses. Understanding revenue generation goals in relation to the company’s collection rate allows businesses to modulate their spending accordingly. It also allows businesses to make decisions about slow-payers or non-payers.
A commercial attorney can assist business owners with collecting balances owed for products and services. Essentially, collection laws allow attorneys to advocate for their clients with respect to breach of contract claims. For example, if a professional services provider enters into a written agreement with a client and performs services for the client, then the client’s obligation to remit payment for the services rendered is triggered. If a client fails to remit payment as obligated then this client is in breach of the agreement with the professional services provider. The law requires that due demand be made upon the breaching party to the agreement. Generally, this occurs within days of the breach.
If payment is still not received within a reasonable time after due demand has been made upon the breaching or defaulting party to the contract, then the next step is determining whether a small claims action or a superior court action should be commenced. In Connecticut, the small claims jurisdictional limit is $5,000.00. Any collections matter that is more than $5,000.00 is properly commenced in the superior court. Generally, superior court actions are based upon a written agreement, which includes provisions for collection principal, interest, costs of collection, and reasonable attorney fees. Attorneys’ fees and interests provisions must be in the agreement between the parties or else these items are not collectible. In other words, a handshake deal that is breached by a party leading to litigation will not include any claims for attorney fees or interest on overdue sums.
Speaking with a business lawyer about customer agreements and strategies for collecting monies owed to you in uncertain times is a must for all responsible business owners. Ensuring that a business has the legal right to collect past due balances along with the reasonable costs of those collection efforts should be a primary goal of all business owners and their attorneys.
My office handles contract drafting, enforcement, negotiations, and collections work. Contact me to schedule a consultation about your business.