Breaking Down the Dispute

Published: June 26, 2007

Practical tips to help overcome commercial collection objections.

Is an objection simply an objection, whether it comes from a consumer or a commercial debtor? Although there are some similarities between the two, they are actually quite different.

Both consumers and commercial debtors can dispute the account, regardless of whether they cannot pay or simply refuse to pay. However, commercial debtors seem to have many more reasons why they object to paying the account, and this can make collecting on commercial accounts difficult and frustrating. Fortunately, there are a number of ways to overcome commercial objections—and some of them may be used for consumer objections as well.

In a session at the International Association of Commercial Collector’s Annual Convention in January 2007, Steve Harms, partner of Muller, Muller, Richmond, Harms, Myers & Sgroi P.C., offered several tips for successfully handling commercial debtor objections.

Disputed Claims

Harms noted that disputed claims are extremely common. While agencies won’t always get 100 cents on the dollar from every debtor—especially on a disputed claim—they should train collectors to respond to and deal with disputed accounts to the best of their ability.

In some cases, a commercial debtor tells the collector, “I am not paying.” When asked why, he may answer with a litany of “because” responses, clearly trying to make the claim fuzzy as a stalling tactic.

At this point, some commercial debtors may offer to review the account on their own and call back the collector later.

“Never let the guy off the phone,” Harms said. “He’ll screen [the second call] and you’ll never get him back on the phone. It’s the first call that’s the dynamic call. Do not let him off the phone. ”

To start breaking down the dispute, the collector should find out the amount the debtor is disputing and see if he can at least bring in the remaining amount. If the debtor will not pay anything until the whole dispute is resolved, it’s essential to discover the details of the dispute in order to resolve the situation as quickly as possible.

Some collectors have a hard time tracking down the facts of a disputed case. Often a dispute involves industry-specific information, and if the collector doesn’t know anything about the particular situation, it can be difficult to address specific concerns. To combat this, collectors should try to learn a little about the industry in which the account originated.

Determine whether a dispute is really a dispute or simply a stalling tactic because the debtor doesn’t have any money. This is another crucial point where the collector needs to keep the debtor on the phone to find out what the real problem is and how it can be resolved. Good listening skills are crucial.

It’s also important to get both sides of the story. When a collector begins working on an account, the only point of view he has is that of the client. But to successfully resolve a dispute, learning the debtor’s side of the story is also important.

“One of the cool things that comes with a lot of claims is call notes,” Harms said. “If you read through the call notes—and I love call notes, please get call notes—you sometimes find there is another side of the story by just reading through the call notes.”

Review the details of the client’s claim before picking up the phone. Was there a purchase order? An invoice? Read the call notes. This will help you understand the debtor’s point of view and respond to any arguments.

Additionally, keep track of any client products or services that cause repeated disputes. You can create strong client loyalty by alerting the client to the trend.

Uniform Commercial Code

One of the biggest defenses a client has is the Uniform Commercial Code (UCC), which is a standardized set of laws governing commercial transactions and business practices. All clients selling or leasing goods operate under the UCC, and every U.S. state has adopted the UCC (though Louisiana opted out of part of the UCC in favor of its own state civil law).

Agencies familiar with the UCC can really impress a client, and collectors familiar with the UCC may find it helps them resolve disputed accounts. Harms gave examples of common consumer objections and how the UCC affects each one.

Ratifying the Contract

When dealing with a disputed account, collectors often hear: “But I didn’t order that stuff!”

Under the UCC, if debtors receive goods, they have to either pay for them or return them. If they do neither, the client can head off this objection by citing the UCC.

“This is based on the concept of ratification,” Harms said. “If the debtor received the goods at the delivery dock and kept them, he has ratified the contract and is now absolutely legally obligated to pay for the goods.”

Nonconforming Goods

Another common objection is the receipt of nonconforming goods, which means the goods were not what the customer expected them to be. At this point, the agency should ask the client if he provided an opportunity to replace the nonconforming goods. If the client did replace the goods and the collector can prove it, the agency wins.

Rejection of Goods

The UCC uses words such as “reasonable” and “timely.” This is what makes the UCC a living document—if the customer should have known about a defect or delay in delivery of the goods as ordered, the customer has to reject the goods in a reasonable and timely way. Sometimes customers will just ignore the bill and not complain, only to protest when a collector calls. This is where the UCC can be an advocate for the client.

Purchase of Substitute Goods

When the goods the customer received were not to her liking and the client failed to follow through with a solution, the customer has the right to go out and buy replacement goods. If the replacement goods cost more than the original goods from the client, this difference could be used as a counterclaim against the client.

Obviously, in this scenario a collection agency will want to try to minimize its client’s exposure. If the client is hit with a counterclaim, it could mean a loss of future accounts for the agency. While agencies can’t always avoid counterclaims, they can avoid the exposure by being knowledgeable when speaking to the debtor.

Warranty Issues Under Finance Leases

If the agency represents a leasing company and the leasing company is not the manufacturer of the goods, the leasing company can create a finance lease for the customer.

A finance lease states that the leasing company is not responsible for any warranty claims whatsoever; instead, it is the responsibility of the manufacturer. The leasing company now has a viable argument for the debtor. A debtor wanting to continue the objection based on the quality of the goods must bring in the manufacturer of the product. The manufacturer is a party to the warranty claim, not the leasing company.

Accord and Satisfaction: Restrictive Check Endorsements

There are three elements in a restrictive check endorsement situation:

* First, the dispute is legitimate.
* Second, the consumer sends an amount—not necessarily the full amount owed—by check with “paid in full,” “full and final payment,” or some variation thereof marked on it to settle the dispute.
* Third, the agency accepts and cashes that check for the lesser amount.

Under these terms, the agency has accepted the lesser amount for full and complete settlement of the total amount. If the agency tries to sue for the difference, a court will throw out this argument.

Bankruptcy and Discharge

Bankruptcy courts can level very substantial sanctions against a collection agency for starting legal action against a debtor in bankruptcy. Check online, use vendor databases or get the name of the debtor’s attorney to verify the bankruptcy claim. And don’t forget to verify dates—if a debtor filed for bankruptcy in 2002 but the debt was incurred in 2004, the bankruptcy doesn’t apply.

Careful Evaluation

The number of disputes commercial debtors can give is practically endless. Remember to familiarize yourself with the UCC, learn about your client’s industry and research the debtor’s account history before making a collection attempt. Harms noted that while these tips may seem simple and even obvious, they can be easily overlooked and ultimately have been the keys to the successfully settlement of many disputes.

This article is a summary of Steve Harms’s session “‘I Don’t Owe the Money Because…’ A Practical Discussion Concerning Debtor Defenses to Paying the Account,” presented at IACC’s Annual Convention in January 2007.