Tuesday's Gone: Recovering on Unreceived Accounts Receivable
While J. Wellington Wimpy’s good-old catchphrase, “I’ll gladly pay you Tuesday for a hamburger today,”[1] has become an expression of financial irresponsibility, paying later for goods and services consumed now is commonplace. Our modern economy runs largely on credit. Just last year, consumer spending accounted for about two-thirds of all economic activity in the U.S.[2] – a good deal of which was powered by credit. More than three-quarters of all U.S. adults carry at least one credit card, and about half of Americans maintain a debt balance on those cards.[3] And as one should suppose, personal habits and patterns of credit use bear on business behaviors and relationships from both purchaser’s and seller’s positions as companies shoulder both roles. But no matter how this credit system is set up, sometimes “Tuesday’s gone with the wind”[4] with the seller or lender left unpaid.
Payments that a business has a right to receive resulting from its delivery of product(s) or service(s) are appropriately enough referred to as Accounts Receivable – or A/R for short. These are commonly unpaid invoices and are akin to a line of credit from the company to the purchaser with a set due date. As indicated by the scope of American debt use, the credit extensions of accounts receivables span the gamut of the economy from housing to food to shelter to transportation to entertainment to professional services. They occur or could occur in virtually every imaginable type of business. However, as of October 2017:
- Over a quarter of small and medium-sized businesses were not receiving those payments as due within 30 days of their expected due dates; and
- Thirty-four percent of those small and medium-sized businesses reported that bad debt affected their growth and profits.[5]
Where a business faces nonpayment on an account receivable, one option is to consult an attorney. A knowledgeable creditor’s rights attorney can help improve a business’s position in respect to that unpaid account receivable. Where appropriate, a lawsuit may be filed. If successful, obtaining a judgment for the amount owed opens the door to successive collection remedies which may include levying on assets or bank accounts or garnishing payment streams such as wages. Where the issues are straightforward, these matters can proceed to judgment swiftly and efficiently – and many of them do.
Some perspective on the commonality of these suits can be gained by looking at the annual traffic of local General District Courts here in Southwestern Virginia. Civil suit jurisdiction in the General District Courts in Virginia exists for matters not exceeding $25,000.00 in the amount sought. In 2017 alone, the General District Courts of the 23rd Judicial District of Virginia, consisting of Roanoke City, Roanoke County, and Salem, processed over 22,599 civil filings – with 9,109 of those matters being initial warrants in debt.[6] In the same year, that district saw 4,931 garnishments. These numbers exclude domestic and family matters, as would be handled by the juvenile and domestic relations courts in the same district. Those are substantial numbers considering that population estimates by the U.S. Census Bureau for Roanoke County and Roanoke City in 2016 were 94,031 and 99,660 persons respectively.[7] Just by rough estimate by the numbers, this means that there was about 1 civil filing (again excluding domestic matters) for every 10 people in the Roanoke Valley that year. Wrapping up with the business perspective, this large extent of suits suggests the following: if a business with unpaid accounts receivable is not seeking either attorney or court assistance, their competitors in similar circumstances very well may be.
[1] From E.C. Segar’s Popeye cartoons.
[2] See U.S. economy speeds up in second quarter, wages continue to lag, Reuters Business News, July 28, 2017 at https://www.reuters.com/article/us-usa-economy/u-s-economy-speeds-up-in-second-quarter-wages-continue-to-lag-idUSKBN1AD0GX; and see Household Debt Makes a Comeback in the U.S., The New York Times, May 17, 2017 at https://www.nytimes.com/2017/05/17/business/dealbook/household-debt-united-states.html
[3] See Americans' Big Debt Burden Growing, Not Evenly Distributed, Gallup News, February 4, 2016 at http://news.gallup.com/businessjournal/188984/americans-big-debt-burden-growing-not-evenly-distributed.aspx
[4] "Tuesday's Gone" is the second track on Lynyrd Skynyrd's first album.
[5] See U.S. SMEs Still Face Challenges with Late Payments and Bad Debt Affecting Growth and Profits, Business Wire, October 26, 2017 at https://www.businesswire.com/news/home/20171026005940/en/U.S.-SMEs-Face-Challenges-Late-Payments-Bad
[6] See Caseload Statistics of the General District Courts for the 23rd District (as reported 1/17/2018) at http://www.courts.state.va.us/courtadmin/aoc/judpln/csi/stats/district/dbr1_2017.pdf
[7] See Census Data at https://www.census.gov/quickfacts/fact/table/roanokecityvirginia,roanokecountyvirginia/PST045216