Debt Collection through Litigation is ugly business. Like we said in a recent post about litigation, it’s time consuming, costly and to be avoided if possible. Unfortunately, there are circumstances when suing your debtor seems like the only option you’re left with.
Your first step toward the litigation process starts right here, asking yourself THE first and most important of our list of 6 things to consider before you sue:
1. Is the claim big enough?
The big picture is that your initial court expenses should not be more than 10% of the value of your claim. If your claim is under a grand, you’re unlikely to find a lawyer who’ll touch it. Frankly, very small claims are typically pursued to ‘prove a point.’ But it’s an expensive way to do so, assuming you can find an attorney willing to take it on.
2. Is your debtor still doing business?
If the business has been dissolved, there’s a good chance that there’s nothing left to collect. Only if you have a guarantee from the owner or officer, will you have a shot at collecting.
3. Does your debtor have assets?
Filing suit, even if the debtor clearly has no assets, may serve you if you want the judgment on record as a claim against future assets. But if there are no assets, this may not be worth the expense and time since you can’t be certain that the debtor’s business will take a turn toward a profitable future.
If your attorney or collection agency has had previous encounters with your debtor, they may be able to advise you on any assets he has to pull from and how he operates under this type of pressure.
4. Do you have the proper documentation?
You must substantiate your claims in court. You must prove:
a. That you received an order for goods and/or services from your debtor
b. That you both agreed on the price
c. That you delivered the product or performed the services
d. That you submitted an invoice and demanded payment
e. That you have not received payment
5. If your debtor is disputing the account, is the dispute legitimate?
If you are 100% certain that you are in the right, then you’re in a position to proceed with a measure of confidence. But if your debtor has a legitimate dispute about the quality or timeliness of delivery or pricing changes, it’s better to accept a settlement plan. Not because he’s right – but because his stance will cost more time and money to sort out.
6. Can you supply witnesses if required to do so?
Among the possible added expenses of going to trial is providing witnesses. Affidavits and depositions aren’t enough.
It’s impossible to predict the many things that can add time and money to the litigation process. But with the guidance of your collection agency and attorney, you should be able to determine if pursuing your case in court is right for your business.