Receivables Control's solutions go beyond traditional agency services.  The General Auditing Bureau provides pre-collection services designed to hold collection costs in check while the Professional Services Group provides an array of services including outsourcing, portfolio liquidations, portfolio purchases, and education. 

Visit www.RCCmn.com

We are pleased to announce the relaunch of Receivables Control's website!  The new site gives you an inside look at Receivables Control through our new video content.  The video clips allow us to tell our unique story.  Present clients will find our site more user friendly and prospective clients will have an opportunity to learn much more about the solutions that Receivables Control provides. 

Be sure to visit our team page and learn more about the people you work with at Receivables Control!  Go to www.RCCMN.com.

After the telephone, Google may be the single most revolutionary tool ever given to the Credit and Collections Industry.  Is your staff using Google to its potential?

Isaac Stone, a collection manager for Receivables Control, uses this simple list to ensure he is viewing the best information about a company.  You may want to integrate these searches when granting credit or at least when it's time to collect a delinquent invoice.   

1.  Search the customer's name.   

2.  Search by the customer's address.  

3.  Search the principal's name.

4.  Search by the phone number. 

5.  Find and view the company's website.   

6.  Search the address of the "ship to" location.

Google provides you insight not found on a typical credit report.  Generally, you are looking for information that helps you make a credit decision,  that helps you collect from a delinquent customer, or that explains why you may not have been paid.   
 

Isaac remembers a situation where he was asked to collect from a law firm.  The law firm didn't appear to be very big.  When he did a Google search he found that the principal attorney was actually incarcerated!  Doing business from a jail cell can be challenging!  Jail isn't normally the first place Isaac would look for an attorney, but thanks to Google he was able to find the information in a few seconds.  

The most common benefit derived from Google is the quick and easy access to additional phone numbers and email addresses.  Frequently we find new locations and even cell phone numbers for principals. And when we can't locate the owners, Google gives us what we need to reach out to neighboring businesses so we can interview them for more information.

Google's advanced features like Streetview provide big benefits in letting you see your customers' locations and even their ship to locations.  It's never been easier to see actual pictures of the people and companies with which you do business.  Be sure to note if companies are operating out of residential addresses or mail drop locations.  Google can be one of your most utilized fraud prevention tools.

Encourage your staff to Google all the time.  It's a very productive tool that answers questions.  Is this company still in business?  Do they have other locations?  Are they legitimate? Whenever you are confronted with that uneasy feeling that "this doesn't seem to add up", Google will help you with the math! 

Personal Guarantees

How Helpful Are They?

By Murray S. Lubitz, Esq.

It is a prudent credit manager that attempts to obtain personal guarantees from the principals of an incorporated entity to which credit is being extended.  In today's volatile marketplace, the existence of a personal guarantee may provide the only viable basis of collecting outstanding receivables from a corporate obligor experiencing financial difficulty.  However, in the final analysis, the effectiveness of a personal guarantee is directly dependent upon the financial capability of the guarantor.

Are There Different Kinds of Personal Guarantees?

Guarantees can be classified as being either guarantees of payment or collection, and the distinction is important to recognize.  A guarantee of payment is a far more effective tool, as it allows a creditor to proceed directly against the guarantor without the necessity of taking any action against the primary obligor.  Conversely, in the case of a guarantee of collection, a creditor must first proceed directly against the primary obligor, and only if the debt cannot be collected after the exercise of due diligence, can collection commence against the guarantor.  Most jurisdictions have defined due diligence as the commencement of legal proceedings against the corporate guarantor and the result being the obtainment of an uncollectible money judgment.  Therefore, when drafting a personal guarantee, a creditor should specify that the guarantee is one of payment.

When Should the Guarantee be Obtained?

Personal guarantees of corporate obligations are generally obtained at either the inception of the business relationship between the supplier and the purchaser, or at a subsequent time when the creditor has lost confidence in the customer's ability to repay a debt incurred in the business relationship.

What are the key elements of a solid guarantee?

Whether obtained at the inception of the business relationship or not, there are some general rules to follow in drafting and execution of a personal guarantee:

• The guarantee should be a guarantee of payment and should specifically refer to past, present or future indebtedness.
• It should be a continuing guarantee, and remain in effect until written notice of an election to terminate is given. 
• The signature of the guarantor should be notarized to insure against any future questions regarding the genuineness of the signature.   There should be no designation of title or corporate capacity. 
• A provision for the recovery of collection expenses and attorneys fees should be inserted. 
• No prior notice or other condition precedent should exist before action can be taken against the guarantor. 
• The guarantee should bind the successors and assigns of the individual guarantors. 
• The social security number and residence (street address and not a PO Box)  of the guarantor should be included. 
• The guarantee should be dated and all blanks filled in.

In conjunction with the execution of a personal guarantee, the well-informed credit manager will also attempt to obtain a personal financial statement from the guarantor.  One benefit is that it allows an immediate evaluation of the financial capability of the guarantor, and if it is deemed insufficient, additional guarantees or other remedial action can be taken.  Furthermore, in the event collection activity is eventually activated against the guarantor, the financial statement will serve a variety of useful purposes including a disclosure of the guarantor's assets.

When the Guarantee is Obtained After the Business Relationship is Established.......

Special problems may arise when the guarantee is signed subsequent to the inception of the business relationship.  In the typical situation, this will occur when the creditor determines that a customer has far exceeded its credit line and appears unable to liquidate the debt.  A dialogue between the creditor and the customer takes place, resulting in the execution of a personal guarantee by the customer's principals.

Although this guarantee may be entirely valid on its face, the unsuspecting credit manager may ultimately discover that the guarantee is legally unenforceable for a variety of reasons, the most prevalent being lack of consideration and statute of limitations.  Each of these topics will be discussed separately.

For the purposes of this article, consideration may be defined as value.  In order for a personal guarantee of a corporate obligation to be binding, value or consideration must be received.  Future extension of credit by the supplier to the purchaser is the most obvious example of consideration.  In addition, the waiver or postponement of a legal right by the creditor, such as the institution of suit to collect an overdue account, or the filing of a mechanics lien, will also be construed as consideration by the courts in most jurisdictions.  The "gray" area is the situation where, after execution of a personal guarantee, the creditor refuses to sell to the customer on either a credit or cash basis, and furthermore takes immediate legal action against both the primary obligor and guarantor.  This may result in the guarantee being interpreted as a gratuitous document and not legally binding upon the guarantor due to the lack of consideration.

Another problem that may surface in conjunction with subsequently executed personal guarantees is the statute of limitations.  As you are aware, the statute of limitations that applies to actions commenced to recover damages for goods sold and delivered is four years [Uniform Commercial Code Sec. 2-725 (1)].

The execution of a personal guarantee subsequent to the inception of a debt may lull the uninformed into believing that the statute of limitations has been waived or extended.  Unfortunately, this is simply not the case.  The personal guarantee does not generally give rise to an independent legal right, and the ability to enforce a guarantee is directly dependent upon the validity of the underlying corporate indebtedness.  Therefore, if the statute of limitations would act as a defense to the collection of a debt from a corporate obligor, it would also prevent imposition of legal liability upon the guarantor.  As a result, a careful monitoring of the aging of accounts receivable is advisable even where personal guarantees are in existence.

What  Is The Bottom Line Advantage to Having a Personal Guarantee?

A personal guarantee creates a greater potential source of recovery for the collection of outstanding receivables.  The guarantee, as an effective tool of collection, can be maximized when proper attention in drafting, execution and monitoring is exercised.  The credit manager who is able to obtain personal guarantees from the principals of his incorporated customers has established a greater security and financial advantage in the protection and minimization of future debt liability.

About the Author

Murray S. Lubitz, Esq

Mr. Lubitz is the principal in the Murray Lubitz Law Firm located in White Plains, New York, where his practice includes Civil Litigation, Debt Collection and Bankruptcy Law.  He received his B.S. Degree from Rutgers University, his J.D. from Brooklyn Law School and an L.L.M. from the New York University Graduate School of Law.  He has served as a member of the National Conference of Commissioners on Uniform State Laws, and has been certified as a Creditors Rights Specialist by the American Board of Certification.

Mr. Lubitz served as the 103^rd President of the Commercial Law League of America and currently serves as its Treasurer. He has lectured before many professional organizations including the New York State Bar Association and the Equipment Lessors Association, and was a featured speaker at a National Collection and Credit Risk Conference.  He has also authored numerous articles dealing with various aspects of commercial law.  He may be reached at ztibul@aol.com.

Receivables Control

Executive Team

Luke Vidor, Pres/ CEO

Quick Links

Patrick O'Gorman was named Receivables Control's 2011 Employee of the Year. 

Patrick is a leader in our Professional Services Group and was recognized for his many contributions to his clients during 2011. 

Patrick joined Receivables Control in 1990 and has built a clientele which includes many of the nation's largest lending institutions.  Congratulations Patrick!

Laura Van Klei was announced as the winner of the 2011 Ignitor of the Year Award. 

Laura joined Receivables Control in 2003 and leads our Trust Accounting Deparmtent.

She was recognized for her hard work and dedication in ensuring all  client transactions are reported accurately and promptly.  Congratulations Laura! 

Industry Update

The Commercial Collection Agency Association reports that through the first quarter of 2012, the number of accounts placed for collection in the previous year is down 17.2% from the 12 months ending in March 2011.  

The dollars referred to collections are down 9.8%. 

These results reflect much of what industry is facing, i.e. flat sales and greater leverage when managing their credit risk.

Receivables Control

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