Recovering a delinquent balance from a debtor corporation that has vanished is a difficult task. Their telephone lines have been disconnected, so calling them is no longer an option. Mail is returned because they have moved and left no forwarding address.

Choices available to creditors and collectors at this point depend on the account balance. Small balances may be written off. If a large balance is involved, however, it's worth the extra time and effort to do a skip trace – a basic investigation into the current status and location of the debtor company.

Skip tracing involves using a variety of resources to track down a debtor that seems to have disappeared. It's important to understand that although you may unearth new information during your trace, there's no guarantee that it will lead to the recovery of the debt. A skip trace merely gathers information. It's through analysis of that information that you will be able make inferences as to the status of the debtor and determine further action.

Skip Tracing: First Steps and Resources

The internet provides immediate access to most skip tracing resources. A basic search of the name of the debtor company on search engines such as Google or MSN often yields an immediate hit. Another initial source often used to trace a debtor is the yellow pages. You may find that your debtor has simply moved and has neglected to inform you.

There are other sources of information available, but these may involve fees. If your initial investigation hasn't turned up anything new, and the balance in question is worth the additional expense, using these sources may be a good option.

Secretary of State or State Corporation Commissions

Each U.S. state maintains a database of registered corporations. Here you will find basic information about the incorporation of the debtor company. There are several drawbacks to keep in mind when considering the information found here:

The records here are not updated immediately and are not always accurate.
Although a corporation may be registered as an active entity, this is not a true indication of the operational status.
The registration is not likely to assist you in locating the present whereabouts of the debtor. All it will confirm is that the debtor is or is not a registered entity in that particular state.

Credit Report

Since a credit report is generated using a variety of sources, it's likely to give you a more comprehensive profile of the debtor. Make certain that the report you obtain is fresh and not merely based on a series of old reports. This will ensure that you are looking at the most recent credit history available. Here you may find additional addresses and indications as to where the debtor company does their banking, which may be useful later on.

Asset Search

While an asset search sounds promising and frequently provides useful supplementary information, it's important to recognize that it is only providing you with a snapshot of the debtor’s financial assets at the time the search is performed. Circumstances can change rapidly, and information gathered today may not be valid tomorrow.

In addition, there are privacy laws in place which limit the scope of a trace. For example, a bank will not confirm or deny the existence of a particular bank account to an outside party, nor will they verify an account balance. Only an order issued by a court permits the bank to divulge this information. The same can be said for information about mortgages and loans.

Gathering Valuable Information Before the Skip Occurs

Skip tracing is generally considered a last resort. It can almost always be avoided, however, if consistent credit safeguards are in place for all prospective sales.

Until recently, it was standard practice in the credit industry to require credit applications from all new customers. However, in the last decade or so, economic pressures have forced businesses to downsize. This has led to an increase in the arbitrary approval of sales, often without sufficient investigation into the credit worthiness of potential customers. As a result, creditors are finding themselves without the basic information necessary to pursue debtors that have vanished without paying the balance on their account.

A credit application provides a comprehensive profile of your customer, including all legal names, addresses, and trade references. It will usually include your standard terms and conditions of sale as well as a personal guarantee. In the event the customer skips, you can use this information to assist in tracing them. The application can also function as an enforceable document should litigation become necessary.

Skip Tracing is Simply Gathering Information

While skip tracing can help creditors and collection agencies locate debtors, it's only a means of gathering information. If you end up establishing contact with the debtor, or better yet, receiving payment, then the process has worked for you. Unfortunately, this doesn't happen very often. Most debtors who disappear do so to avoid their creditors. So, even if you do locate them, they may very well choose to ignore your demands for payment. In that case, the efforts you have put into skip tracing will help you make an informed decision when considering a lawsuit against the debtor.

Skip tracing investigations are only the first step. They provide you with facts and figures. Using that information, you must make educated inferences to determine how, or if, you will pursue payment on the account.

*****

Riki-Lee Ritz received a B.A. in French language and literature and is a bilingual account executive in the international department at ABC-Amega. She manages claims in Europe as well as francophone countries in Africa and the Caribbean and has achieved the designation CCAA Certified Senior Collection Professional.

ABC-Amega is a commercial receivable management firm providing 1st and 3rd-party receivable management services in the U.S. and more than 200 other countries worldwide.