Successfully Collect Your Debts



Posted: Wednesday, April 28, 2010

by Nina Kaufman
Ask The Business Lawyer

Every business owner can relate to Jenny's experience. She frittered a whole day tracking down clients who owe her money, despite having sent letters, emails, and even face-to-face meetings. Unfortunately, many business owners also share Jenny's predicament: they had no written agreement. Should they enlist a lawyer's help?

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: "Setting Expectations" In short, keep your expectations low. There are several reasons. One is that attorney fees can sometimes surpass the size of the debt you would like to recover, especially if the amount in question is less than $10,000-$20,000. You can work with a lawyer on a contingency basis, but the attorney usually takes a handsome 1/3rd cut. Further, do you have a strong case, which can be supported by documents such as a contract, unpaid billings and demand letters? Do the provisions in your contract address interest payable on amounts owing, or even for attorney or debt collector fees? You need to consider if the time and costs involved are worth the amount you recover. Remember too, that many cases settle, so be prepared to compromise.

Phase 2: "Hiring The Professionals:" Once you have decided to sue or to fight for your money, leave the recovery process up to the people who know how it works: the debt collectors and the lawyers. By doing so, you free yourself to focus on your core business, and you send your errant clients a strong message that you are determined to fight for your money. The pros know their business, they have persuasive skills, and know the legal terrain.

Phase 3: "A Trail of Paper". Collecting a debt may seem simple, but you need to produce documentary proof. Have you sent a demand for payment? Was it disputed by the client? Did the client lodge a protest of faulty work from you? Your case is stronger if you have the paper work in hand, and showing correspondence from another party strengthens your demand.

Phase 4: The "Waiting Game". If you have to bring a lawsuit, breathe deep and steel yourself. The process can take from 3 months to 2 years (depending on the size of your claim). Plus, the vast majority of commercial cases settle. Often for less than 100% of your claim. Still, settling the case has the major advantage that you actually get the money (questionable, if you have to go to trial).

Phase 5: "Cash in Hand." If you go to court, and the judge decides in your favor, all you are really getting is a legal judgment which rules that the money is due to you. The actual cash is not in your hands ' you have to go collect it. If you have a devious debtor, you or your attorney can run around in circles finding the debtor's bank account with money. If the customer decides to file bankruptcy, you might be left with nothing.

Work out procedures and processes to avoid getting being dragged down in the debt collection morass. A written agreement which details payment policies saves you from having to muddle around in the nightmare world of debt collections.

Copyright (c) 2010 Ask The Business Lawyer

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Fed up with crazy legal issues in your small business? Check out Nina Kaufman, Esq.'s user-friendly business law resources at GreatBusinessLawResources.com. She cuts through legal gibberish to save you time, money, and aggravation. She also writes and blogs for Entrepreneur Magazine online. Get your free copy of her Contracts & Collections Info Kit today!
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