Recently we have been examining collection policy in the context of a company’s overall credit management scheme. Having a written lien policy with a set and strictly followed procedure is important not only to recover the money owed to the business, but also for the sake of efficiency. If the proper steps to be taken, and the timeline in which to take them, are clearly set forth it makes the business’s collection process much more streamlined and efficient, because the complicated and time-consuming decision making process has already been completed. As viewed through this screen, good foresight and planning can substantially help in making quality, efficient, and repeatable collections decisions. Further, a comprehensive, and routinely followed, lien policy can help to make your collections efforts more successful.

Lien Policy (or Other Security) Can Help Collection Policy

A thorough lien policy, or for folks not in the construction industry, a thorough policy of obtaining other security interests, can be immensely beneficial to the formulation of an effective and manageable collection policy – and help collection projects be successfully resolved. There are a number of reasons for this.

Liens Allow Recovery From Parties Against Whom Recovery Could Not Otherwise Be Obtained

In general, when a party is unpaid on a contract, an action to recover the debt owed is limited to the contracting party. This applies to collections, as well as litigation, and it makes sense. The party who owes the money through the contract is the appropriate party from whom to recover. If a proper lien has been filed on the property, however, new rules apply. Once a proper lien exists on a property the lien claimant is no longer bound by the general rule that he can only recover from the contracting party. Since a valid lien encumbers the property – the owner now has a stake in the situation. The property owner does not want his property to be foreclosed upon to satisfy the debt, so the owner has become another potential party from whom recovery of the amount owed can be obtained by a collector. As noted, as a further inducement to pay, a lien claimant can even foreclose on the property and recover the amount owed from the sale of the property itself. Having these options can play a large part in determining which projects are worth sending to collections, and the likelihood that those projects will be successfully collected.

Secured Debt Facilitates Settlement

Also, being a secured creditor gives important leverage in terms of settlement. Even if the attempt to collect the entire amount owed is unsuccessful, the fact that a party is a secured creditor can provide a strong incentive for the indebted party to at least come up with some settlement offer in an attempt to avoid foreclosure. The strength of a secured claim is much more conducive to encouraging payment than an unsecured claim, for that exact reason. If it can be avoided, no debtor wants to lose their property securing the debt.

Crafting a sound collection policy is important for businesses – no company wants to leave money on the table. Supporting the collection policy with a comprehensive credit and security policy will dramatically help.