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Collecting Commercial Debt When a Business Closes

2020 has been a rough year for American businesses. Due to COVID-19, many businesses have had to close or reduce their hours or services. This costs businesses a lot of money in lost productivity and reduces their sales. Since this crisis has now stretched into a nearly year-long ordeal, many businesses have had no choice but to close their doors for good. Unfortunately, when these businesses close, they often do so with many debts outstanding. If a client of your B2B business has been dissolved and still owes you debt, it’s important to know how to handle this unique situation. Here are some tips for collecting debts from a business that no longer exists.

Start With Understanding

The first conversation you have with your client after you learn about the fate of their business is critical. Sometimes, as a business owner or accounts receivable manager, it can be easy to think first about how this will affect your business. However, in this moment, your client needs to feel supported and know that you care. 

This is the way any decent person should behave, but it is also strategic. Remember that you are dealing with a person who has lost their business and has very little to offer in terms of payment. Being aggressive and making threats is unlikely to yield a positive outcome. However, if you are kind and supportive, you may find yourself at the top of the “to pay” list when the client has the money to settle their debts. No one will be in a hurry to pay you if you were unkind to them at one of their lowest points.

Ask The Right Questions

After that initial conversation, it’s important to stay in touch. When you do, you should ask respectful questions about how the former business’ debts are being handled. Depending on the type of business and how the business is dissolved, there could be variations in the legal liabilities of the owners or officers.

When a business closes, they will most likely file to dissolve the business. This is a government action, so it has more impact on taxes and credit than anything else. It is very possible to close a business with outstanding debts. However, dissolving the company doesn’t mean it no longer owes the debt. 

In your discussions with representatives of the former business, try to negotiate a payment plan that works for all parties. You might consider offering to allow them to make small payments over time or negotiating a smaller settlement if they can pay all at once. If they are unable or unwilling to negotiate, you do have options. However, you will need some information first. You may be able to find this information in your original contract or in tax paperwork, like the W-9. If the company was an LLC or Corporation, it is unlikely that owners or officers are personally liable for debts or damages. This is when it’s good to consult your contract. If you include a personal guarantee in your contract, this overrides the protection of the LLC or corporation status.

Get Some Help

Collecting outstanding debt from a business that has been dissolved is tricky business. This is especially true if your initial negotiations have fallen through. Once the debtor has refused to pay or negotiate with you, your next steps must involve the legal system. At this point, it makes sense to partner with an experienced debt collection agency like Southwest Recovery Services. We can deploy the most effective negotiation and collection strategies to help your client become motivated to pay. They also have the knowledge and tools to put additional pressure on the debtor to pay, including credit reporting, and civil litigation.

Southwest Recovery Can Fight For You

No one likes to put further strain on a business that is failing. However, you need to collect the money that is rightfully yours. Without that cash flow, you risk failing your customers and putting your own business in jeopardy. Southwest Recovery Services understands that. That’s why we combine a compassionate approach with proven negotiation tactics that help motivate clients to pay. If you have some tricky accounts that you need help settling, Southwest Recovery can help. Give us a call today to learn more about our solutions!

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