Monday Morning Meeting: Why We Do Not Collect 100% Of The Accounts Placed
Today Wilson Cole, President of Adams, Evens, & Ross (AER) and Samantha Cole, in-house counsel for AER, are discussing statistics related to the cases that are turned over for collections.
80% of the time AER will be able to collect on a case using only the collections processes the professionals at AER have refined over the years. Of the 20% remaining cases, half of them will need more work and are recommend for a lawsuit and half of them are not. This podcast will mainly focus on the 10% where the collections process did not yield a collection and the case is not recommended for a lawsuit. One classic example of such a case is where the case was turned over after the debtor went out of business years ago, all known points of contact are no longer valid, and the agency that turned over the case is mad that AER is unable to collect any money. Here the key factor is that the agency waited too long to turn over the case for collections and had they done so sooner, some collections could have been possible.
A personal guarantee is a form that states something to the effect of "if the business fails or fails to pay, the staffing agency can go after the signee personally." A personal guarantee can be part of a larger standard contract or a separate/special contract. Either way, personal guarantees are most effective when the signee is an owner/officer of the company, because as mentioned before, HR managers change jobs all the time. It is very important to get a signed personal guarantee if you are liable for the payroll of your candidates, however, because if the client company refuses to pay, you are in big trouble. And even though staffing agencies think time and time again this won't happen to them, the statistics tell a different story and are undeniable. 80% of businesses will fail within the first 3 years and then 80% of the surviving companies will fail within the first 5 years (and failed businesses generally don't pay their bills).
Another example is where the debtor company is out of business, but the staffing agency still has current contact information of the owner and wants to pursue the owner for collections, but the contact was specifically signed by the debtor company (and there is no personal guarantee). Here, chances of collections are very slim and the key here is that staffing agencies should always try to incorporate personal guarantees into your contracts.
Another example is a company that has gone out of business but re-opened. If the company is picking up where it left off in roughly the same industry, Samantha notes it's possible to collect by citing the legal precedent of "continuation of business," but if the company is re-opening in a completely different field then it is probably not possible to collect.
Another example is when bankruptcy is officially filed during the collections process and by law it brings everything to a halt. In that scenario, AER cannot contact the debtor or the debtor's attorneys for a minimum of 90 days and any further continuing of the collections process will be subject to very specific laws, and sometimes it is not recommended to pursue the collections process anymore in general at that point.
The key here is that there were probably warning signs of this happening that should have told the staffing agency to send the case over to collection sooner to increase chances of collection. A final example of where collections are not possible is when the staffing agency signed a release/agreement/settlement that prevents collections of funds and for some reason the staffing agency expects AER to find a way out of it. Samantha adds this last example is further compounded by the fact that the legal standard for being able to claim duress is very misunderstood and a very high bar to be reached in court. Again, a common theme/key factor is to watch for warning signs that a company is having financial difficulties and when you see enough of those signs, turn over the case for collections sooner instead of later. To follow up with Samantha, you can email her at Samantha@aercollections.com.