Perspectives

Collections

Addressing Defaults and Remedies within Their Contracts to Protect from Financial Risk

Addressing defaults and outlining remedies within contracts is crucial for protecting businesses from financial risk. For finance teams, it is essential to ensure that these provisions are robust and clear, providing them with the necessary tools to respond effectively in the event of a customer’s default.

A default occurs when a party fails to fulfill its contractual obligations, such as making timely payments or or adhering to the terms of a lease or purchase agreement. To mitigate the financial impact of a default, contracts should include late or missed payments, failure to maintain insurance, or unauthorized use of equipment. By clearly defining what constitutes a default, the dealer can act swiftly and decisively when a breach occurs.

Once a default is established, the contract should provide a range of remedies to protect the businesses’ financial interests. Common remedies include the right to repossess any equipment, acceleration of payment obligations (where the full amount due becomes immediately payable), and the imposition of late fees or interest on overdue payments. The right to terminate the contract and recover damages, including the cost of retrieving and refurbishing the equipment, should also be clearly articulated.

To further strengthen these protections, finance teams should ensure that contracts include provisions for legal fees and costs, allowing the dealer to recover expenses incurred in enforcing the contract or pursuing legal action. Additionally, contracts should specify that any waiver of a default or delay in enforcement does not constitute a waiver of the dealer’s rights under the contract, preserving the dealer’s ability to enforce the agreement in the future.

It is also important to include dispute resolution mechanisms, such as arbitration or mediation, which can provide a more efficient and cost-effective means of resolving conflicts without resorting to lengthy litigation. These mechanisms should be clearly outlined in the contract, along with the steps required to initiate them.

Finally, finance teams should work closely with legal counsel to ensure that default and remedy provisions are tailored to the dealership’s specific needs and are compliant with applicable laws. Regular review of contract templates and updates in response to changes in the law or business practices is essential for maintaining effective protection.

Reviewing Your Receivables for 2023

Closing out the year can be a hectic time. Implementing some of these tips in to your process could help clear pesky receivables from your ledger before the end of the year and help you breeze through year-end close next year:

  • Perform a close calendar walkthrough with all the key parties involved.
  • Prepare a reconciliation for every account, even accounts with no activity.
  • Prepare activity roll-forwards for accounts receivable and bad debt reserve, fixed assets, intangible assets, goodwill balances, etc.
  • Review your Aged Accounts Receivable report, try and collect from clients with 30-60 day past due accounts. These are most likely to pay quickly.
  • Check in with clients that possess 60-90 day past due accounts and make sure they have received all your communications about their debt.
  • Review uncollectible accounts and write-offs. Identify what went wrong to improve your process moving forward.

 

If you would like to clean up your collection process for 2023-the experienced attorneys at Wagner, Falconer & Judd are only a phone call away.

 

What You Need To Know: MN’s Emergency Executive Order for Commercial Collections

On May 4th, 2020, an Emergency Executive Order was signed into effect, placing suspensions on a number of collection activities related consumer debtors. The Order suspended “service of a garnishment summons on a consumer debtor or consumer garnishee.”* The order also suspended obtaining “information about a consumer debtor’s assets, liabilities, and personal earnings.”

On January 7th, 2021, Executive Order 21-02 amended Order 20-50 to add levies to the suspended activities as well. Up to that point, only garnishments and formal demands for disclosure of financial information had been suspended. The updates in Order 21-02 added a significant limitation on the suspension of garnishments and levies by adding language limiting the suspension of judgments entered on or after May 4th, 2020 and language allowing for wage garnishments and levies on judgments entered prior to May 4th, 2020. Previously, the suspension was on all judgments old and new.

On May 6th, 2021, the MN Governor issued Executive Order 21-21. This order provides a “sunset” provision on Orders 20-50 and 21-02. Movement on this Order relies on the determination by the Commissioner of Minnesota Department of Health to confirm that seventy percent (70%) of people sixteen years of age and older have received at least one dose of COVID-19 vaccine.

Effective two business days after that confirmation, or on Wednesday, June 30th, 2021 at 11:59 pm, whichever occurs first, Executive Orders 20-50 and 21-02 (as well as others) will be rescinded. Meaning, on July 1, 2021, or perhaps earlier, the suspension of garnishments, levies and demands for disclosure related to consumer debtors will no longer be in effect.

If you have questions about whether you may be effected by any of these changes, please reach out to one of our Commercial Collections attorneys.

 

*”for the purpose of this Executive Order, the terms ‘consumer debt’ and ‘consumer garnishee’ have the definition of ‘debtor’ and ‘garnishee’ as used in Minnesota Statutes section 571-712, subdivision 2(b) 2(c), when applied to debtors and garnishees who are natural persons and whose debt originated from the purchase of goods or services purchased primarily for a personal, family, or household purpose, and not for a commercial, agricultural, or business purpose.

Executive Order 20-50

Executive Order 21-02

Executive Order 21-21