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June 1, 2022 Collections

When Should a Business Turn Over an Account to Collections?

An accountant working on making an account to collections
accounting concept. businesswoman working using calculator with money stack in office

For a number of different reasons, not all customers pay their accounts on time. Some people make mistakes, some end up in a difficult financial situation, and still others simply fail to live up to their financial obligations. Indeed, the  Urban Institute found that approximately one-third of all households nationwide have had a debt turned over to collections within the past decade.

This raises an important question: When is the right time for a business to turn an account over to collections? The answer always depends on the specific circumstances. That being said, there are some useful considerations to keep in mind. In this article, our New Jersey debt collection attorney provides an overview of some of the key things to know about turning an account to collections. 

Best Practice: Allow a Grace Period on Accounts 

Most businesses provide some form of grace period for delinquent accounts. As described by Investopedia, a grace period is a “set length of time after the due date during which payment may be made without penalty.” For example, a customer may not be charged any penalties of fees until at least a few days after the technical due debt. 

Beyond having a penalty-free grace period, it is generally recommended that businesses have some additional period of time to try to allow the debtor to make arrangements before turning the account over to collections. Depending on the nature of your business, you may want 90 or 120 before turning an account over to collections. 

Best Practice: Always be Proactive With Overdue Debts

WIth delinquent debts, it is crucial that businesses take proactive measures to collect. There are a number of different steps that your company can take before an account is turned over to collections. Ideally, your business should have a basic strategy in place for dealing with overdue accounts. Here are three key things that you should do before turning an account to collection: 

  • Document: All overdue accounts should be carefully and comprehensively documented. Doing so will put your business in the best possible position to collect in a timely manner. 
  • Notify: Customers/clients should be notified regarding the status of their account. Within a reasonable period of time—most often, no more than 30—provide some form of written notice that their account is past due. 
  • Pre-Collection Warning: Businesses should provide customers with a final warning before turning an account over to collection. It is generally a best practice to provide a written final warning and try to reach out to the customer via phone or other means of communication. 

Debt Collection Tip: In some circumstances, it may be advisable to offer the customer/client some form of settlement option or payment arrangement option. While debt settlement is always a case-by-case issue, it can often help a debtor get back on track. 

Legal Action May be Required: Hire a New Jersey Debt Collection Attorney

If you cannot get a customer to make payments as required, you may need to take legal action to protect the financial interests of your business. Do not try to navigate the complexities of the legal system on your own. An experienced debt collection attorney can help. Among other things, a New Jersey debt collection lawyer will: 

  • Answer your questions about the debt collection process; 
  • Ensure that you satisfy all pre-litigation requirements; 
  • Help you organize records and document the debt; and
  • Devise a comprehensive strategy to collect on the account. 

Do Not Wait Too Long to Initiate a Debt Collection Effort in New Jersey

There is a state statute of limitations on debt. Under New Jersey law (N.J.S.A. 2A: 14-1), most debts are subject to a six year statute of limitations. If a business fails to file a lawsuit for an outstanding debt within six years, the debt will no longer be collectible. If you have any specific questions about the applicability of the statute of limitations, an experienced NJ debt collection lawyer can help. 

Contact Our New Jersey Debt Collection Lawyers for a Fully Confidential Consultation 

At Snellings Law LLC, our New Jersey business debt collection attorneys provide top quality, fully personalized legal representation to companies that are trying to collect on an outstanding debt. If you have any questions about your options, we can help. Contact us today for your fully confidential initial consultation. We provide debt collection representation to businesses throughout all of North Jersey, including in Morris County, Bergen County, Union County, Essex County, and Hudson County.