payment, telephone calls go unanswered, and notices go ignored. As the customer moves further into delinquency, a dispute notification may be issued. There are a number of options available to a company that wishes to deal with the problem internally, such as adopting a more assertive calling approach and seeking verification that the goods were received. When internal procedures have been exhausted, the company may look to seek help from a third-party collections agency, understanding that sometimes the very fact that a debt has been put out to an external collector ‘elevates’ the debt to a more serious and more immediate level. And some of these debts can be substantial: the average debt that Euler Hermes Collections currently deals with in the US, for example, is around $18,000, but individual debts can be 10 times that amount. As part of the collections process, a company may decide to pursue a debt through the courts, and must first register the debt with a court and provide the necessary demographic information about the business that it is suing, in addition to any documents that substantiate the debt.
A quirk in the system
A quirk in the US legal system that has been known to catch some companies off guard is that while a company can legally file a lawsuit against another company in any court in any state, a court in one state often does not recognise the judgment of a court in another when it comes to enforcement, so the company is then required to go through a process called ‘second judgment’ through the second court – a process which amounts to starting all over again! Since there is a great deal of inter-state commerce within the US, most companies tend to file in the state of the debtor to avoid encountering this problem. Once a lawsuit has been filed alongside the substantiating documents – such as a statement of account; invoices (copies are acceptable); and a contract or credit application that spells out the terms and conditions for the sale, e.g. ability to add interest, court costs, collection fees, etc – the court will decide what is the ‘reasonable amount’ that can be awarded in those areas. The company must then independently contact a bailiff’s agency and contract with them to serve the debtor with the papers, after which time the debtor has anywhere between 30-60 days to file an objection or respond. It is an American peculiarity that the papers do not have be served in person, but can be served via a registered agent. The court will establish an arbitration date or hearing once an answer has been filed and will take depositions from both sides, before comparing notes to decide on whether the charges are valid. If the court sides with the plaintiff, unless an agreement can be reached by both parties before the hearing then the fees for the court’s time will be added to the debt (at the judge’s discretion), so
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most defendants in this situation will want to avoid going to court. In the event that an answer has not been filed by the debtor, the court proceeds with a default judgment. If everything goes smoothly, the company can be executing within four to five months. To give some idea of the scale of the challenge, Euler Hermes Collections in North America is currently working with over 6000 individuals at 1322 attorney firms to collect overdues, as attorneys do not register in multiple states. Indeed, even within a state, attorneys often do not serve all of the constituent counties; for instance, Los Angeles county is the largest county in the state of California, as a result of which there are very few attorneys there that cover any county other than Los Angeles. The US shares many similarities with the UK when it comes to its attitude to credit, and many of its future challenges – if not directly linked to the UK – are at least inextricably linked to the rest of Europe, especially in terms of international trade. Previously robust companies, and sectors, are showing signs of stress, and businesses conducting trade with US partners would do well to ensure that their credit management strategies are more closely aligned with the increasing risk.
Collections: benefits at a glance
• Our name is all it takes: the Euler Hermes name makes an impact. As part of the Allianz group of companies - our global brand is taken seriously.
• Unparalleled reach: a global network that combines skills, know- ledge and local expertise to find a collections solution in any market.
• Trained specialists: we are experts in professional collection and negotiation and ensure positive outcomes whilst retaining client relationships throughout.
• Full collection service: from pre-legal action through to judgement and enforcement.
• Online access: Our web based tool Collections Online, allows you to place, track and update your case 24/7.
380,000+ debt
placements in over 130 countries
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