Recently, it was reported that a paint supplier, who sued the Trump National Doral resort and spa for an unpaid bill, obtained a judgment against the resort of $32,000 for paint plus a staggering $390,000 in collection legal fees. In the U.S. each party pays their own legal fees in commercial litigation unless the contract provides otherwise. As you can see, even the Trump organization did not notice or object to the legal fees claim in the supplier’s contract or credit application.
In order to improve the collection of your accounts receivable, vendors should take care in using a sales and/or credit agreement with certain minimum beneficial terms. The following are 3 material provisions that will help assure that your customer is motivated to pay their account with you in a timely manner:
- have a right to recover your costs of collection including legal fees, court costs and interest, regardless of whether you file suit;
- establish that the governing jurisdiction of any dispute will be designated to a court in the county where you are located and/or otherwise convenient for you;
- include a personal guarantee by the buyer’s owners.
Most buyers do not consider these provisions objectionable if they even review your sales and/or credit agreement. With these provisions in place, the buyer is more motivated to pay. Moreover, if the buyer is in financial difficulty, the personal guarantee greatly increases the possibility that you will be paid before any other creditors for which the owner has no personal guarantee. There are also other terms typically in a sales and/or credit agreement which can be part of your agreement with the buyer.
We would be glad to discuss your customer credit agreements and documents with you.
Questions about exit and succession planning? Contact Herb Fineburg at
ABOUT HERB FINEBURG
Mr. Fineburg is recognized as one of Philadelphia’s most respected business lawyers whose substantial knowledge of tax law provides clients with strategic and cost-saving benefits in connection with commercial transactions, taxation and wills, trusts and estates matters. Known for his ability to resolve complicated matters effectively, Mr. Fineburg has assisted businesses and individuals with the organization of their finances, business and real estate affairs, and the structure of their assets (i.e., in LLCs, partnerships, corporations, trusts or joint ownership). He has substantial expertise in the preparation of buy-sell agreements for co-owners who are family members or unrelated business partners and has handled the resolution of shareholder and partner disputes and buy-outs. In addition, to working on bank financings, business contracts and employment matters for his business clients, Mr. Fineburg also provides advice on business acquisitions and sales. Mr. Fineburg, who began his law career as a commercial litigator and bankruptcy lawyer, frequently provides litigation counsel and assistance to a wide range of firm clients. His articles have appeared in the Pennsylvania CPA Journal, the Journal of S Corporation Taxation and other publications. A graduate of Washington University in St. Louis, Mr. Fineburg received his law degree from the University of Missouri and a Master of Laws in Taxation (LL.M) from the New York University School of Law, Graduate Division. Mr. Fineburg is the Managing Shareholder of the Philadelphia office and is also a member of the Board of Directors at Offit Kurman.
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