EXERCISE 3: Al Moore, owner of Moore Air Conditioning Company, described his eff

Question

EXERCISE 3:

Al Moore, owner of Moore Air Conditioning Company, described his efforts to collect from customers who have failed to pay:

                In our business, the recourse we have in case of nonpayment is to file a lien on the property. That must be done within 90 days. But it's not worth filing a lien unless the case amounts to $2000, $3000, or $4000. I can tell you right now - for bills on service calls, you are just wasting your time. It costs more than it is worth!

                There's a restaurant down at Russellville where we installed a unit. The restaurant owners owe me $3,200. They've never paid one cent, and this account is going into its third year. I finally took them to court. Sued them. Back in March, we got a judgment against them. But they are appealing, and we still don't have any money.

a. What are the implications of these legal problems for credit management at Moore Air Conditioning Company?

b. Is Al Moore correct in arguing that it does not pay to take legal action to collect small accounts? Explain your answer.

Explanation / Answer

a. The implications of these legal problems for credit management affects Moore Air Conditioning company in a negative manner because I believe that if the organization is unable to get back what they should receive as payments then it will affect their business badly and they might not be able to make good progress in their investments in the business. Credit is bad sign for a business because it affects the independent functioning of the business as they are unable to make plans for the future.

b. Yes, I believe that Al Moore is correct in arguing that for small accounts it is better to resolve offline because legal actions will be costly and if the account is small then there may not be any profit on a whole. The legal procedure possess some expense hence for small amounts it is better if we can resolve it internally which will better for both the entities involved.

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