Clear credit terms provide the basis to sue a customer for non-payment, the motivation your customer needs to pay you, and the assurance that any lawsuit will take place in the forum you choose. This article will discuss how your credit terms can make collecting receivables easier.
To Make Collecting Receivables Easier, State When Payment Is Due
Your terms should clearly state when payment is due, such as Net 30. Without a specified term, payment will be due within a reasonable time, which is ambiguous and not something you want to litigate. To make collecting receivables easier, you want the due date to be clear and defined.
To Make Collecting Receivables Easier, Make Non-Payment Expensive
When collecting receivables, charging interest and attorney fees can motivate customers to pay you.
Specifically, you want to provide 1.5% to 2% interest per month on past-due accounts, and reasonable attorney fees if you go to collections. Since you may hire your lawyer on a contingency basis, state that attorney fees equal to one-third of the balance will be deemed reasonable.
In most cases, the decision not to pay is calculated to save money. By making nonpayment expensive for the customer, you give it more reason to pay you.
To Make Collecting Receivables Easier, Provide A Forum Selection Clause
Finally, your terms should require that all litigation take place exclusively in New Jersey. If you have to sue an out-of-state customer, litigating here is easier for you and harder for the defendant. As a practical matter, you could probably still sue in the customer’s state if that makes more sense (since it’s unlikely to enforce a New Jersey forum clause), but your ability to sue here, and not get dragged there, makes collecting receivables easier.
Whether your credit terms appear in your credit application, in a sales or service agreement, or on your invoices, they can make collecting receivables easier by setting a clear time for payment, motivating the customer to pay, and giving you home field advantage in any collection action.
For more information on collecting receivables, or if you’d like to discuss a specific collection issue, call me at 856-667-1669 or contact me here.
This material is for informational purposes only and should not be construed as legal advice. No person should rely on this information without seeking the advice of an attorney.