When debtors don’t pay, it usually isn’t because they can’t—it’s because they don’t know their obligations. This is particularly true in any case involving factor companies.
Working with a factor company is cut and dry, except when it comes to collecting debt. In any factor-related transaction, there are TWO potential debtors to go after—the client of the factor – and the customer of the factor’s client—which can make recovering money that’s owed a two-dimensional experience. Fortunately, factors are covered by the Uniform Commercial Code (UCC), which protects them with very specific provisions that can be immensely impactful for debt collection.
But traditional collections agencies don’t know the contents of the UCC, nor do they know how the contents can be strategically applied.
The End Result When Working with a Traditional Commercial Collection Company
The average debt collection agency wastes its time bullying debtors rather than explaining the law and where liability lies according to the law.
That’s why it’s so important to have an intimate understanding of the laws surrounding factor collection. Familiarity with things like the UCC can make the collections process a smooth, stress-free transaction.
Example of How Misunderstandings Lead to Delinquent Accounts….
Recently, our firm was hired by a factor company to resolve a debt collection situation. The debtor—a freight logistics company—used an outside staffing firm to fill many of their employee vacancies, and these employees were provided at a fixed hourly-rate. Invoices were issued from the staffing firm. The invoices are then paid to the factor at full value.
The contract signed between the staffing company and the freight firm stated the employees were to be paid a fixed hourly wage. The problem arose when the staffing firm orally promised its employees (those individuals currently working for the freight company) a pay bump.
The staffing company began billing at the higher rate and business continued as usual, until one day the freight company took notice of the higher rates on their invoices.
Not only did the freight company immediately refuse to pay its outstanding invoices claiming it had never agreed to the increase, it also wanted to deduct the increased amount it paid from current invoices.
What the freight company didn’t understand was that their financial obligation was to the factor company (our client), whereas their rate dispute was with the staffing company. Because of specific provisions within the UCC—provisions our law firm explained in detail to the debtor — the money owed on current invoices could not be deducted, and payment in-full was expected.
Why It Is So Important to Understand the Debtor’s Issues and Explain the Letter of the Law in Deta
Once the freight company understood the reality of the situation and where their obligations lie according to the UCC, they had no option but to pay up. They worked out a plan to pay their debt, and paid the factor company the $150,000 over the next two months.
Having intimate knowledge of the UCC, gave our firm the freedom to communicate with the debtor in plain language. We could explain how particular clauses covered their situation, and demonstrate how they couldn’t legally deduct money from current invoices.
Getting confused debtors mired in complex situations to pay monies-owed takes more than skill, it takes a depth of understanding most collections agencies can’t provide. If you’re a factor company involved in a collections controversy, enlist the help of seasoned counsel—you’ll resolve the situation with significantly less stress.
Need More Case Studies?
Read the case study belowto see how we helped a software company collect $20,000 in overage charges due to them plus keep the $100,000 per year relationship intact.