Analyze your debtors finances
Don't throw good money after bad.
Before you initiate the legal process to collect a debt, you need to make an important decision - is it worth the cost of litigation? As you weigh this decision, you'll need to predict your debtors ability to pay.
To examine your debtors financial health you should consider; income, property, cash on hand, inventory, corporate bonds/stock, notes receivables, debts/liabilities or a host of other factors that can aid them in determining the likelihood of recovering your money.
If you confirm a debtor does not have the means to pay or is on the edge of bankruptcy, instead of litigation, you may want to consider a write-off and move on.
More on Debt Write-Off
Make Your Formal Demand
If you decide to go ahead with legal action for non-payment of invoices, you initiate the process with a formal demand letter to the defendant, whether it be an individual or a business, or both. If the defendant is a business, but an individual signed a personal guaranty, you can make the demand on both.
In your demand letter, among other things, you'll want to include:
A statement letting the client know they’re in default on the invoice payment
The total amount owing for the invoice and any additional late fees that have accumulated
A request for payment by a certain date for the full amount owing on the invoice
An advisement that you may pursue legal action if the invoice isn’t paid by the deadline
Sending your final demand via certified mail may help in getting your clients attention and to increase its effectiveness.
More on how to Get your client to pay overdue bills
Commencing legal action
Small claims
Determine if your case is eligible for small claims court. The small claim courts have been designed to be cheap, quick and straightforward. Parties are therefore mostly not represented by attorneys.
Little preparation is needed or required. Providing you have the documentation of the debt owed to your business — i.e., a contract or invoice, evidence that services were rendered or merchandise was delivered, along with demand for payment and evidence payment was not made — you should be able to prove your case. You should also consider beforehand any defenses the customer or client might make and be able to address and dismiss them.
You can only file in small claims court if the amount owed to you is under a certain dollar amount. The maximum amount varies from state to state, but it’s typically between $2,500 and $25,000. If a debtor does not show up, you may win the case by default.
Can you file the lawsuit with yourself
Determine if you want to hire a lawyer or file yourself. Some debt collection agencies as Fair Capital will file on your behalf utilizing their in-house or network of attorneys.
Sue in Civil Court
If the amount of the debt exceeds the limited amount of a small claims court or the case you’re bringing against your debtor is complex, you might consider suing in a more formal state court — a trial court. These cases are more formal and tend to take up more time than a small claims, sometimes lasting several days. Typically this will be in the county where the transactions took place or where the defendant resides/operates.
Depending on the complexity of your case, you may also need to hire a lawyer to represent you in court.
Pre-Judgment Relief (Writ of Attachment/Writ of possession)
Securing a judgment in even a non-complex case can take upwards of two to three years to resolve. After you file a complaint, it may be advisable to swiftly seek a writ of attachment or writ of possession to either place a lien on some of the defendant's assets or to take possession of them (if they were collateral for your agreement). This can protect your ability to collect on a judgment while also pressuring the defendant to settle the case.
Collecting a Judgment
When you win a civil case in court, the judge may award you money damages, but In some situations the losing party (the debtor) will refuse to follow the court order and pay the judgment, this is the reason why a vast majority of judgments are not being collected. If this happens, you may be required to take additional measures to collect your judgment. More on How to collect a judgment
More on Locating assets of a debtor
Formal Dispute Mediation
You can hire a mediator to help you and your client come to an agreement regarding your dispute. A mediator focuses on non-adversarial conflict resolution without taking sides or providing a judgement. Typically, a mediator allows parties to a dispute to air their points of view and then encourages them to cooperate in reaching an agreement. Check the contract you signed to see whether disputes require binding arbitration.
You can sue to get paid – But utilizing our Debt Collection Service may be a better alternative.
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