By choosing to enlist the help of a debt collection law firm you can take advantage of a number of different debt collection options to assist in the collection of monies owed to you. Understanding the options available to you and your tolerance for risk will allow you to make a better business decision.
Collection attorneys work as a “legal” agency. Most collection attorneys will handle all phases of the debt collection process.
Demand
Unless required by the underlying agreement between you and your customer, demand is not necessary. Absent a sense of urgency, most creditors want to start with a demand to see if the debtor will respond. A written demand can be sent via email (depending on whether the debtor is commercial or consumer), by fax, mail, or hand delivery.
Demand should include additional outreach to the debtor so that messages can’t get lost. Reaching out over the phone is preferred as it allows for meaningful conversation and the ability to determine whether voluntary payment will be made or if a bonafide dispute exists. What transpired at this point will help guide the attorney and the creditors as to the possible outcomes. Consideration will include the cost to proceed, the likelihood of success, and the economic reality.
Liens
There are some industries that have additional remedies that can and should be taken advantage of. For example, a subcontractor and/or general contractor can utilize a mechanic’s lien, and a moving and storage facility can use a warehouseman’s lien.
The ability to lien is limited. Creditors should avail themselves of the opportunity as part of the debt collection process. You don’t need to wait until the demand phase to assert a lien.
Security Interest
A creditor may have an interest in an asset (i.e. a bank account, merchant account receivable, inventory, and more). The creditor, by virtue of their security interest, can generally can take some or all of the collateral to secure the indebtedness through an expedited court order
Mediation
Some creditors voluntarily decide to participate in mediation for debt collection. For others, mediation may be mandatory based on the terms of the underlying agreement between the parties or ordered by the court.
As such, it’s important to understand how non-binding mediation can affect your overall debt collection case. and have an idea of how long or how much you’re willing to invest in mediation, if at all.
Arbitration
Not everyone is required to go to arbitration. Some contracts require all fee-related disputes go through the arbitration process (assuming demand fails). For some, especially our accounting firm clients, arbitration is required if mediation fails. That is unless your contract specifically excludes arbitration for fee disputes.
Litigation
Filing a summons and complaint demanding monies owed is the most common option. Lawsuits can include a cause of action to foreclose on a lien or can seek the return of secured assets, accounts, and more. Although referred to as a breach of contract claim, in many situations, a signed contract is not always necessary.
Though some cases require motion practice and discovery, many lawsuits go unanswered by the debtor and result in a default judgment. Regardless of whether the judgment is on default or on the merits, the collection attorney can execute the judgment just the same.
Settlement Agreements
A good collection attorney can draft an agreement for you which can help you position yourself in the most advantageous way and obviate the need for costs, arbitration, mediation, or litigation,
Debt collection is not one-size-fits-all. A lot depends on the size of the claim, your industry, your debtors’ financial situation, your tolerance for risk, and the economic realities of pursuing the various options for debt collection. At the end of the day, debt collection needs to get you paid. It should not require you to pay a substanial money to collect.
If you have a debt collection matter that needs resolving and have questions about which debt collection options to utilize, contact Frank, Frank, Goldstein, and Nager for a consultation.
