What You Should Know About Successful Debt Collections
My college roommate, Jenny, called to vent at the end of an aggravating day
. "I wasted the entire day chasing down customers who owe me money," she complained. "I've called. I've sent e-mails and letters. I've even met with some of them in person. But do I get my money? N-o-o-o-o. I get hot air, or no response at all." She asked, "How can I get these people to pay me? Does it make a difference that I didn't have a written agreement? Is it even worth involving a lawyer?"Unfortunately for Jenny, she had a better chance of getting paid when her customer relationship was active than when she has finished the work and the client is already showing signs of slow - or no - payment. But unless you're prepared to take the hit as a matter of regular policy, you may well need or want to sue for the debt. What can you expect from the process?
Phase 1: "Dampen those Expectations". Do not set your hopes too high. There are many factors in the mix, notably the attorney fees which many times can exceed the amount you hope to recover. This is especially so if the amount outstanding totals less than $10,000 to $20,000. While you may find a lawyer to work with on a contingency basis, the attorney will likely take a third of the recovered amount. Next, consider if you have a foolproof case. Do you have signed contracts, sent invoices, and other written proof? Is the issue of interest owing on the debt due addressed in your contract, is the client liable for attorney's fees or debt collection expenses? All these have to be considered, including the time and money invested, and weighed against what you hope to recover. Finally, be prepared to compromise, as many such cases settle.
Phase 2: "Call in the Pros". Once you have decided to move ahead, call in the pros- the debt collectors and the lawyers. They are trained to persuade, and are familiar with the law governing debt collections. By delegating the debt collection process to someone else, you can return to the business of running your firm profitably. And as many deadbeat clients count on your not stepping up to the plate, hiring the professions sends them a strong message that you are aiming to fight.
Phase 3: "Organizing Documentary Proof". Debt collection appears simple on the surface, but you need to show evidence that you have a case. Collect copies of the invoices sent, any demand letter for payment, and any correspondence from the client, either disputing your claim, or accusing you of faulty work. By getting the paper trail organized, you enhance your case. Including correspondence from another party lends credence to your claim.
Phase 4: "The Patience Game". Once you initiate a lawsuit, you are likely in for a wait of anything from 3 to 24 months. The length of time varies according to how big the claim is. The reality is many commercial cases settle out of court, in the main, for less than the amount in dispute. However, by settling, you get some of your money back (an unlikely outcome, if the case goes on to trial)
Phase 5: "Show Me The Money". Unfortunately, even if the court rules in your favor, you are not really getting your hands on the money. What follows next is that you or your attorney will have to get it from the client. If the client is scheming and crafty, you may find yourself in a wild-goose chase, finding the debtor's bank and an account with money. Should the debtor opt for bankruptcy, you might end up with zilch.
By taking pre-emptive steps in the early stages of a client relationship, you avoid headaches and heartaches later. Having a written and signed agreement that spells out payment policies will help you avoid the nightmare of debt collections.
Copyright (c) 2010 Ask The Business Lawyer
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