MAXIMIZING RECOVERY FROM A HIGH BALANCE CLAIM

Highlights:

• Unresponsive debtor, teetering on the edge of bankruptcy

• Our client had written off the balance due and was prepared to recover what it could through seizing inventory

• C&W recovered $32,000 of the past due balance of $39,000, and also has the customer paying now on a current basis

 

Background

The debtor had seen a decline in its business and had fallen behind on its bills. Under pressure from creditors, it began rationing its cash. Our client received numerous promises to pay past due balances from the debtor company, but only a few were kept. Through the process, our client became very frustrated with the debtor's lies and stonewalling. Our client referred the debtor company to C&W for collections. The past due balance was over $32,000.

 

When we received the claim, we analyzed the history. We drew the initial conclusion that the debtor was simply very low on cash. As a consequence, the secured lender was getting paid first and the debtor was playing the float on all its creditors who were demanding payment in full. Our client seemed to be stuck in the middle of the line to get paid. We realized that the name of the game was to figure out how to move our place forward in line without a drastic measure that might push the debtor into bankruptcy.

 

Therefore, our strategy was to find the best source of leverage we could, and to use this leverage to extract a continuous stream of smaller payments in sporadic chunks. We decided not to pursue a structured payment plan for several reasons. First, the commitment offered would likely be meager. Second, it would push our client further back in the line to get paid. Third, it offered no protection against broken promises. And most importantly, it would cause us to give up the opportunity to get paid more if more cash suddenly became available.

 

We started the collection process by contacting the debtor to try to build a relationship and gain access to information flow. At first the debtor refused our contacts. After leaving a series of escalating messages, we finally got a call back from the exasperated debtor. At this point, we switched collectors to introduce a friendlier voice - one not associated with the harder tack we took to get a call back. The new collector approached the debtor respectfully and stated that we knew there were cash flow problems and we needed to find some resolution to the issue. After several conversations, the debtor disclosed a more detailed picture of the finances and we learned that our hypothesis was in fact correct.

 

During these conversations, we also probed for the most leverageable points. It turned out that the debtor's business was improving and its biggest customer wanted to give them some new orders. Because of the financial situation, the debtor was having difficulty getting served by key vendors to fill the customer's order - including our client. If the orders were not filled, the debtor risked losing its biggest customer, guaranteeing disaster.

 

We worked with our client to release some orders (a small amount) in exchange for a large partial payment from the debtor. By doing this, we moved up to the front of the line of vendors to get paid with little additional risk. This pattern continued.

 

Although it required constant monitoring and contact (and the debtor grew aggravated at the process), we managed to bring the debtor's account current over the course of three months without a lawsuit or pushing the debtor company to declare bankruptcy.