The debt’s value and the debtor’s financial status are major factors that make B2B collections complex. But oftentimes, the other party’s cooperation, or lack thereof, can make things more intricate. In this context, businesses may require strategies to collect unpaid invoices and debts effectively. One of these strategies is through liens and asset seizure.
Understanding liens: A legal claim on assets
A lien is a legal claim placed on a debtor’s assets or property to secure a debt owed to a creditor. There are different types of liens, two of which are particularly relevant in the context of B2B debt collection:
- Specific or nonconsensual liens: These are liens that the law creates without the debtor’s consent. For instance, when a contractor has not been paid for their work, the law can place a mechanic’s lien on real property.
- Consensual liens: Creditors and debtors create these through an agreement. For example, in a financing arrangement, the debtor may agree to provide the creditor with a security interest in specific assets as collateral.
Liens ensure that the debtor cannot dispose of assets with a lien on them until they pay the debt in full.
Preventing asset transfer: The power of liens
Liens serve as a powerful tool for businesses seeking to secure their debt. Once businesses establish a lien, they legally prohibit the debtor from selling or transferring the assets until they satisfy the debt. This means the debtor’s property remains encumbered until they fulfill their financial obligation.
Enforcing liens: Legal procedures
To enforce a lien and seize assets, businesses must follow specific legal procedures, which vary depending on the jurisdiction and the nature of the lien. Typically, selling or foreclosing on assets subject to the lien requires a court order.
Liens can be a highly effective legal remedy for B2B collections and securing unpaid debts. By obtaining liens on a debtor’s assets, businesses can protect their interests and prevent debtors from disposing of their property until the debt is fully satisfied. A clear understanding of the types of liens and the associated legal procedures is essential for businesses looking to employ this strategy in their debt collection efforts.
