payment, debtI’m in the US and am investigating available remedies for customers that do not pay for services offered. My business model allows users to try a service and pay for it only if they are successful using it. I set it up this way to attract more users so that they will worrying about paying for a service if it does not work for them and want to keep it this way for now. I know I am taking a big risk by allowing this to happen and want to plan for the few customers that may not pay.
I am planning on sending customers with amounts past due for more than 30 days a letter that states my company has a policy for customers that are past due. I want to state I will report amounts past due if they remain unpaid for more than 90 days to Trans Union, Equifax, and Experian and resend that letter again if unpaid after 60 days, then final letter at 90 days and actually report.
I went to each credit reporting website and requested information from each but did not find a simple form to fill out to submit an unpaid amount. Has anyone actually done this?
Lastly, if a customer does not pay after 180 days, I do not think it would be worthwhile to continue trying to collect and am not planning on suing them. I will probably forgive this amount but feel that the customer should not have used the services for free. I would like to report a 1099-C to the IRS because the customer did not pay and then they will have to report the value of the service as income. I am not sure if this is allowable because my business is not a lender and financial institutions are required to file IRS Form 1099-C, but the site does not say if other institutions are allowed to file. Anyone know if non-financial institutions are allowed to file this form?
I understand this is more of a legal questions and I do have a counsel retained, but they are only familiar suing customers to recover past debts and not with these methods.
Have you tried following the procedures laid out on the different credit agencies websites. A simple google search turned up this, looks like they require a physical inspection ($75) + custom software (unknown cost)
http://www.experian.com/consumer-information/reporting-to-credit-agencies.html
Reporting to Credit Agencies
Becoming “first-in-wallet” is an advantage for many companies who report consumer payment data to Experian. Since risk management is part of business, companies like yours are in search of simple and effective tools that have the potential to make a significant impact. By reporting your consumer accounts receivable data to credit agencies, you can minimize the occurrence of late payments or defaults in your account base. What are the Benefits of Reporting to Credit Agencies?
Start Reporting to Experian
Take time now to read and understand the basic steps and requirements for reporting consumer data to Experian. If you are still interested in using Experian for your reporting needs, follow the steps below or contact Experian at 1 888 348 0832, option 3. We can answer your questions and help you get started with data reporting.
Step 1 - Get Approved for Reporting Access
In order to report consumer data to Experian, you must first get approved for reporting access by Experian’s Membership Department. Part of the approval process includes a physical inspection where a 3rd party must come to your location and perform an inspection for security purposes. There is a non-refundable fee of $75 to perform the inspection.
To get started, click the button below and complete the new client registration application. Experian’s Membership Department will then review your application. New Client Registration
Step 2 - Obtain Metro 2 Credit Reporting Software
Once you have been approved by Experian’s membership department for reporting access, you must get set up with a software vendor that will report in a Metro 2 format. There are costs associated with Metro 2 credit reporting software, therefore, it is important that you do not purchase the software until you are fully approved by Experian’s membership department for reporting access. Please contact a Metro 2 software vendor for more details about costs.
Step 3 - Register to Use e-OSCAR
You will need to register to use e-OSCAR as part of the process for reporting consumer data to Experian. e-OSCAR is a web-based, Metro 2 compliant, automated system that enables Data Furnishers (DFs), and Credit Reporting Agencies (CRAs) such as Experian, to create and respond to consumer credit history disputes. There are costs associated with using e-OSCAR, therefore, it is important that you do not register until you are fully approved by Experian’s membership department for reporting access.
For more information about e-OSCAR, associated costs, or how to register, visit www.e-oscar.org.
1099-C is a cancellation of debt. This is used when a loan is not being repaid and is being written off (either fully or partially, most commonly in cases of foreclosures or short sales in real estate).
You provided services with allowing customers not to pay for them, and then you’re trying to charge them and treat the customers that refuse to pay as if they took a loan from you. You then go on and and report the discharge of the loan by filing the 1099-C.
However, there was no loan. No customer promised any payment to you - you allowed them to use your service without paying.
If you’re a cash-based taxpayer - you didn’t recognize any income at all, so there’s nothing to discharge. If you’re an accrual-based taxpayer, you only recognize income when you invoice the customers, but customer not paying your invoice is not necessarily in your debt. He didn’t agree to the charge to begin with, so you can’t claim debt until there’s a judgement in your favor.
In any case, you cannot report a debt discharge to the IRS unless there’s no chance of collecting the debt. If you don’t even try to sue the people who you claim owe you money, I don’t think you can satisfy that requirement.
Bottom line, as I said in the comment - talk to a lawyer that can explain this to you. If your current lawyer doesn’t understand what a debt discharge is and how it is reported - then you should fire that lawyer and find another one.
Do not engage in such a predatory practice without an excellent, nothing less, legal counsel.
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