Running a successful business depends on receiving the expected compensation for your goods and services. Unfortunately, not every client or customer makes good on those obligations. Sometimes, a company is simply poorly organized and slow to pay because processes are lacking or the business is understaffed. In other cases, the customer may be experiencing financial difficulties, juggling debts, and prioritizing financial obligations in a way that does not benefit your company.
Occasionally, a customer or vendor may refuse to pay as the result of a dispute or alleged failure on your part, or the debtor company may be entirely insolvent, dissolving, or in bankruptcy.
Your options for collecting those past-due debts and the best approach for recovery depends on a variety of factors. An experienced debt collection attorney is in the best position to assess the situation, advise you as to how best to proceed and, if debt collection litigation is your best course of action, to represent you as you pursue that litigation.
Assessing the Value of Debt
There is much more to determining the value of an outstanding debt than simply looking at the number on the unpaid invoice. Prioritizing uncollected debts also requires factoring in both the likelihood of and the expense of collecting on those debts. Thus, an experienced debt collection litigation attorney will assess the debtor’s cash flow and assets in determining which debts to pursue first and how much to invest in those efforts.
In some cases, a settlement for partial payment may turn out to be more profitable than litigation in pursuit of full payment. In others, where there are assets to attach or there is reason to believe that the debtor has liquid resources from which to make payment if pressure is applied, a debt collection lawsuit may be the best approach.
Debt Collection Litigation Stages
When a debt is contractually past due, you will generally have the option of proceeding to litigation or attempting to reach a settlement before taking that step. However, filing a debt collection lawsuit in no way limits your right or ability to negotiate a settlement with the debtor. In fact, commencing litigation may offer powerful motivation for the debtor to make good on the outstanding obligation.
Debt Collection Negotiations
Whether it is in your best interests to negotiate for a partial settlement or payments over time will depend on several factors, the most significant of which is the likelihood that you will be able to obtain a judgment and collect against that judgment.
For example, you and your attorney may determine that it is best to reach a settlement if there are difficulties in proving your claim, or if the debtor does not have assets or income that are readily attachable.
Debt Collection Litigation
If you are unable to reach a settlement, the next step may be mediation, arbitration, or proceeding to trial. Both mediation and arbitration are alternative dispute resolution methods, although they operate a bit differently. You may opt to pursue alternative dispute resolution before or instead of trying the case before the court, or arbitration may be required under the original contract.
The mediation process is essentially a facilitated settlement negotiation, and does not result in a binding determination. Arbitration results in a recommendation or ruling by the arbitrator, and may or may not be binding.
If the parties do not employ an alternative dispute resolution process, or if mediation or nonbinding arbitration fails, you may proceed to a full trial.
Debt Collection Trials
Although a debt collection case may seem simple and straightforward, a substantive or procedural oversight may mean the failure of a claim. For example, only specific people within your organization will be able to offer legally admissible testimony regarding the amount and validity of the debt and the payment history. In addition, you may be required to respond to counter-claims regarding breach of contract or other issues that would eliminate or mitigate the debtor’s obligation to pay.
Receiving a judgment against a debtor does not necessarily guarantee receiving payment. A judgment is simply a legal declaration that the debtor does in fact owe you the money. While a judgment opens up new opportunities for collection, such as garnishment or seizure of assets, those remedies do not occur automatically. An attorney familiar with collection litigation procedures can facilitate collection on your judgment.
Talk to an Experienced Debt Collection Litigation Attorney
Debt collection is necessary to keep your business running smoothly, but so is keeping your focus on day-to-day operations and long-term planning. The experienced debt litigation attorneys at KPPB can assist you with every stage of the collection process, from ensuring that your contracts fully protect your rights to litigating your claims and pursuing collection of judgments on your behalf. Contact KPPB LAW for more information.