Your customer has finally responded to your demands for payment on the aged receivable. The response was a tale of woe accompanied by an offer that was far too low. As if that was not enough, the customer can’t even pay a lump sum offer. He requested a long, long, long, term payout. You pressed for an increased offer but the customer refused to increase their offer of payment. The offer was presented as a take it or leave it deal. Should you accept the offer of settlement or litigate? What should you do?
Deciding what would be in your company’s best interest requires consideration of several factors:
- Debtor’s true financial situation: Most companies that are in distress will give you a confidential peak at their financials to support a low offer to settle. Asking for the financials is acceptable and requested by our firm to substantiate financial hardship.
- Demand on customer for payment by a contingency fee collection attorney . Will forwarding the claim to a collection attorney to make demand get you paid?
- The underlying fee dispute clause in your contract . If you have a dispute resolution clause your choice of how/where/what needs to be done, is pre-determined. Regardless of whether your contract provides for alternative dispute resolution or litigation , there are out of pocket costs associated with each. Calculate the costs associated with moving forward with your claim. Although the filing fees for the Courts in New York are relatively minimal, the costs to arbitrate a case can be in the thousands.
- What are the fees for counsel to handle the case from start to finish?
- The anticipated length of time to arbitrate/mediate/litigate the case to a final judgment. What is the time value of money? Will your customer settle the case after receiving notice of filing of your case? If yes, will the increased settlement amount cover the cost outlay and contingency fee for the collection attorney’s fee? If not and you have to go to the mat, will the customer be around when final judgment is obtained so that there will be a pay day?
- What are the available remedies to enforce a potential judgment in your state?
Example: Personal guarantor is offering 40% of the amount owed. The only asset you have been able to identify that could potentially satisfy a judgment is debtor’s income stream from his place of employment. Once judgment is obtained, will you be allowed to garnish wages? In New York the answer is yes but in many States (Texas, South Carolina, etc) the answer is no.
For further information about whether you should litigate through to judgment or accept the offer of settlement please contact us at (212) 686-0100 or email Jocelyn directly at JNager@ffgnesqs.com.