Local Business

Barry: Legal options when good accounts go bad

Repeat customers are the cornerstone of any successful business. Unfortunately, even the most reliable accounts can become problematic when they fall behind in payment.

If the time comes to bring someone to court for nonpayment, two important questions on whether to file suit are: What are your chances of success? And, how expensive and time-consuming will it be to win?

Both of these questions can look grim for the potential plaintiff when there is a long course of contracts, purchase orders and invoices going back and forth. Over the course of multiple transactions, many defenses, offsets and counterclaims can arise, decreasing your chances of success. It can become difficult to prove exactly how much money is owed after all the claims and defenses have played out.

Businesses can cut through the fog of repeated transactions through the civil action of an “account stated.” While contract claims focus on performance and payment under each transaction, an action on an account stated looks at the history of payments between parties.

A history of transactions between the parties, an agreement on the amount owed and a promise to pay are what’s needed to prevail on an action for an account stated. The agreement on the amount owed and the promise to pay also can be implied from the mere fact someone received an invoice and failed to object. An account stated can even be inferred from a single transaction as long as accounting was provided. It can be much simpler and quicker to prevail on an account stated than a contract claim for the same case. The amount of damages can be established from the invoices alone, so long as the promise to pay the agreed amount is implied. There is no need to prove who performed the contract and who breached it, if there is a valid reason for the claimed debt.

Certain contract defenses, which ordinarily would pose difficulties to collection, can be preempted or completely unavailable when the cause of action is for an account stated. As such, an account stated should be a part of any commercial collection strategy. The account stated, however, can be instructional both for creditors and debtors in daily business practices. If you receive an invoice that does not look right, don’t ignore it since doing so can be a legal admission of the debt or a promise to pay it. Make sure to object in writing right away.

If you have reason to believe a customer may have difficulty paying, or that the accounting may be complicated, start sending regular invoices. Make sure the accounting is in writing, and it will be easily understood by someone (specifically, a judge) with little to no knowledge of the transaction itself or of standard industry practices. While litigating the account stated is a job for your lawyer, businesses need to understand the legal effect of invoices and accountings in repeated transactions can protect you if a commercial dispute arises.

• Gregory J. Barry is an attorney with Zukowski, Rogers, Flood & McArdle in Crystal Lake. Reach him at 815-459-2050.

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