The Business Case For Taking Unclaimed Property Compliance Seriously

Early Attention May Improve the Bottom Line

Posts emphasizing the need for companies to take unclaimed property laws seriously are increasingly common. Most of these articles, however, focus on the potential ills arising from lax unclaimed property law compliance. And justifiably so. The potential downsides are significant:  disruptive audits, excessive estimated liability assessments, and harsh statutory penalties. But there is a more optimistic rationale as well. Determining the causes of unclaimed property and taking steps to avoid or promptly rectify those issues be good for business. 

Fundamentally, the appearance of unclaimed property on a company’s balance sheet means that something went wrong—a customer lost, a liability not discharged, a transaction unreconciled. A few years of dormancy later, the holder is left with unclaimed property to be reported and remitted to the state. But what if the holder doesn’t wait until the last minute to analyze potential unclaimed property? There are some benefits.

 Keeping Customers & Clients

Many types of unclaimed property result from losing touch with customers and clients – the most valuable resources of your business.   Shoppers with unused gift cards, brokerage clients with dormant accounts, and counterparties with stale credit balances can all represent valuable relationships withering on the vine. Yes, you can find new customers. But according to the Harvard Business Review, “[d]epending on which study you believe, and what industry you’re in, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.” Early attention to these items can renew and maybe even reinvigorate these customer relationships, allowing you to keep the business you already have.

Protecting Against Liability

Assuming that the payment or credit was properly generated in the first instance (more about this in a minute), the existence of unclaimed property also means that the holder has an undischarged liability. On the other side of that undischarged liability might be an increasingly irate customer, counterparty, or vendor wondering why they haven’t been paid. The result can be strained relations, angry letters, or even a collection lawsuit.  An ounce of prevention in the form of following up on outstanding payments is worth a pound of cure in settling lawsuits.

 Preventing Phantom Debts

Sometimes, payment obligations and/or credits are not “true” liabilities to begin with. Many credit balances that are allowed to age – remain unreconciled because they are accounting or bookkeeping errors such as double payments, mistyped payable amounts, or contingent liabilities booked as though currently due and payable. Generally, if money is not actually due to the owner, then it is not unclaimed property that must be reported and remitted to a state. Unfortunately, many credit balances are left to sit until the information that might be used to reconcile them become unavailable, or the sheer magnitude of credit balances makes it impractical to perform research. By looking at these items early and often, erroneous credit balances and be resolved and prevented from ripening into erroneous unclaimed property.

 In sum, unclaimed property compliance is important for avoiding statutory liabilities and disruptive state audits. At the same time, attention to unclaimed property can also help maintain existing customer relationships and avoid needless expense.