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When a business owes your company money, there are many different avenues you can take for debt collection. If that business is no longer in operation, however, it may be considered defunct—and that’s an obstacle that can make debt collection very difficult. If you’re struggling to recoup owed balances from out-of-business clients, this quick guide can help shed more light on the matter and what your options are.

When Is a Business Defunct?

If a business is permanently closed and no longer offering services, it is defunct. Typically, you won’t be able to maintain communication with the client, as their location may have been vacated, the phone number disconnected, and the website shut down. This may or may not be preceded by the company filing for bankruptcy.

A defunct business is not one that is restructuring, under new ownership or rebranding. In these situations, the client may still have viable means to repay a debt.

Why Is It Difficult to Collect From a Defunct Client?

debt collectionIn most situations, when a business is defunct, they no longer have assets that can offer any value. As such, there are likely no funds available to resolve outstanding debts. When a corporation or LLC is defunct, the business is no longer liable to repay debts.

The only situation when repayment is possible is when the debt was attached to an individual (such as a partner/owner, not the business entity itself) who had agreed to be personally liable. In these cases, actions may be taken to seek funds from the responsible party. However, this process may involve expensive legal steps that may outweigh the cost of the original debt.

How Can You Prevent Losses From Defunct Clients?

The best way to recoup owed balances before a business becomes defunct is to start the collection process early on. If you have unpaid invoices from a client, don’t wait for them to go out of business. Instead, you can use a third-party collection agency to recover funds while the company still has money available.

 

Serving clients across the country, Joseph, Mann & Creed is a trusted B2B collection agency that will help you seek repayment for unpaid invoices. Taking a personalized approach, these specialists will use effective and legal methods to resolve and negotiate debts so you can minimize losses. You can also count on this team to work fast so you can start debt collection before an owing party becomes defunct. To learn more about their comprehensive assistance in converting credit to cash, visit this Cleveland, OH, agency online or call a friendly associate at (216) 831-5626.

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