In this article, we discuss debt collection practices in Indiana and cover a step by step process that a business could use to collect on its accounts receivable.
As a business owner, especially one that does not collect for their products or services upfront, accounts receivable can become a nightmare if not managed properly. On the flip side, if you’re struggling with debt but don’t understand why you’re getting certain letters or notifications asking for payment or threatening legal action, familiarizing yourself with Indiana debt collection practices can make managing your debt much easier. Below you’ll find a series of steps that most businesses take when trying to collect on their accounts receivable. Keep in mind, the steps escalate in the severity of action and consequence for the consumer.
Step 1: Focus on internal collection practices. Before pursuing legal action against your client consider evaluating your current AR collection procedures. While each business is unique, collecting on accounts receivable is a fairly uniform process. You may find the tips below helpful.
- When drafting contracts with customers, include an attorney-fee provision that stipulates if one party does not fulfill their contractual obligations, such as paying for services, then they must cover the attorney fees of the plaintiff.
- Include a late-fee provision, informing customers that they will be charged a late fee for any late payments.
- Print clear and concise language explaining your collection procedure directly on the invoice. It should detail the number of days delinquent until a late fee is charged and how many days until the debt is sent to collections.
- Make sure you’re sending notices to delinquent customers reiterating the payment date, past due payments, late fees, and any collection warnings.
If all attempts at internal collection fail, then you’ll have to consider handing off the account to your attorney to initiate a collection suit.
Step 2: Send a demand letter. It’s good practice to have your attorney send a demand letter explaining that if the customer doesn’t pay by a specific date then a suit will be filed. Sometimes just seeing something legal and official is enough motivation.
Step 3: File the lawsuit. If the debtor fails to respond to the demand letter, your attorney should file suit in the county where the customer lives and/or does business. Often, debtors will not show up to defend a collection suit, at which point the judge will reward you with a default judgment. If the defendant files a motion within 30 days, then the default judgment will be reversed and your lawyer will need to continue the process.
Step 4: File a citation to discover assets. After obtaining a judgment against the debtor, and if the debtor still refuses to pay, your attorney can file a citation to discover assets to the debtor. This citation is a court document that legally forces the debtor to answer questions about their property and income in person. The citation must be served personally to the debtor by a sheriff or special process server. If you know what banks the debtor uses (you can look at a check from the debtor if you have one), you can send the citation to the banks and they will be required to freeze the debtor’s accounts until the citation is lifted.
Step 5: The Rule to show cause order. If the debtor fails to appear at the court date set for the citation to discover assets, the court will enter a rule to show cause order. This requires the debtor to show up for another court date to explain why he or she should not be held in contempt for failing to appear at the last court date. This must be served by a sheriff or special process server. If the debtor appears at the rule to show cause order court date, then he or she will be questioned about their assets.
Step 6: A Writ Of Body Attachment. Not just a weird sounding title, a writ of body attachment is a court order directing the sheriff to arrest an individual. The court issues a writ if the debtor fails to show up for their court-ordered hearing. In this case, the sheriff would seek out and arrest the debtor and place him in jail overnight. The debtor will be brought before the judge to explain his failure to attend his court date. The judge will also fine the debtor and set a new court date.
Step 7: Forcing the debtor to turn over assets. If your lawyer, or the collection agency, has gone through all the proper channels and discovered the debtor’s assets and place of work, they can seek to have the bank turn over enough of the debtor’s non-exempt assets in order satisfy the debt and attempt to serve a wage garnishment on the debtor’s place of employment, respectively. Any vehicles or real estate also have the potential to be sold in order to satisfy the debt.
Staying on top of your accounts receivable can be a job in and of itself. That’s why many businesses seek to outsource the task to a collection agency. Whether through the use of a good debt collection attorney or a collection agency, delegating this duty to someone trained specifically in the task of collecting debt can free up precious time to focus on other areas of your business.
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