Norm Cowie, CCE
Director of Credit for Paramont-EO, Inc.
One of my favorite things about being in credit … other than the fact I’m not in sales … is weapons.
Yeah, weapons. No, not the Second Amendment stuff, but weapons that help me do my job.
I was thinking about this the other day when we obtained a judgment against both a corporation and its principal. The reason we were able to grab this guy by the lapel is because he signed the personal guaranty. So when he defaulted and we filed action, we included a count against him.
Some people don’t ask for or require guaranties on accounts, while others do, but don’t bother to pull a credit report when opening the account, or check it when a customer defaults.
The guaranty is part of our approval process. If an account’s references aren’t quite enough, a sterling personal report may push it over the edge into approval. On the other foot, er, hand, a negative credit report showing a lot of write-offs, maybe a bankruptcy and other smelly stuff gives me a clear path to denying the account and moving along.
Once an account goes bad, the guaranty comes into play again. When I’m threatening action, I can remind him/her/they/them/it that I will pursue them individually and maybe garnish their family pet. And once I obtain a judgment, I can attach a judgment lien against their house, vacation home and their business assets and even foreclose on their houses. If I can find their personal bank account, I can garnish not only their business bank accounts, but their personal ones.
Now you might ask, how do you go about finding these accounts?
Good question, and I’m going to assume you did ask this. First, the business account. The nice thing with our bank is we get copies from everything deposited in our lockbox, so if someone pays by check, I have copies of their checks, which give me their bank information. If they pay by wire, same thing.
But what about customers who pay by credit card? You’re right, this puts us in the situation of not knowing.
The first time this happened to me, I wrecked, er, wracked my brain trying to figure out how to get this information and I had a brain tsunami. What if I opened a small checking account under an innocuous name that didn’t appear related to our company and sent a check to the customer for, say, $100 with a note that it was a rebate? Then, when the customer cashed the check, bingo, there’s the bank information. I know this sounds kind of scammy, and slimy but it’s legal. And yeah, I’m willing to stoop.
Another weapon I was able to use with guaranties is I used to be able to send a letter to the customer telling them our adverse information would be put directly his/her personal credit report and giving them a limited time to reply after which I could and did put our information right there. This was one of my favorite modes of attack and so many instances were quickly paid and resolved. Unfortunately, this option was removed about fifteen years ago and this was one less bullet in my gun. But when I had it, it was awesome! Imagine getting a call from someone you wrote off years before and the dude (usually a dude) calls you out of the blue asking for help in getting your information off of his personal credit report.
Yeah!
And there’s more. If you know who your customer’s customers are, you can file non-wage garnishments on their accounts receivable. One time I followed a customer to their job and got paid. You might consider hiring a PI to follow your customer.
But this is all suit and judgment action, what other weapons are out there? Fortunately, we are in construction supply, so we have mechanics liens. I may have written an article or two about liens, so I won’t go more into it here.
Okay, what else? Believe it or not, one viable weapon is bankruptcy. I once filed an involuntary bankruptcy against one of our customers and proved he had some personal assets he attempted to hide. Usually, you need three creditors to file an involuntary, but I was able to prove that there were no other debtors, so we filed it on our own. We were paid much of our balance.
But there are times where you simply lose. The deadbeat evades, hides, obscures, disappears, smokes, and your efforts are all in vain.
Is there anything else you can do?
You know, like a parting shot?
Well, there is one thing, and it won’t get you any money, but it may give you some closure.
If you write something off to bad debt, you can send a 1099 tax form to the customer so he/she has to pay taxes on the write-off, which for them qualifies as income.
So maybe you aren’t paid, but now you may have put them into a ticklish tax situation.
(My award-winning book, MOONED is now available in hardcover. MOONED is a young adult book adults can read about a dog and cat turned into were humans by their werewolf master. Fun action. Check it out on Amazon.)
