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Litigation for late-paying customers: Is it the right choice to make?

When you run a business, whether a corporation or sole proprietorship, it’s hard to escape the debt hassles. The accounts receivables are the lifeline of every business. So, if your revenue takes a backseat or turns slow, you are sure to feel the impact. Understanding your rights for generating a litigation process against the debtors ensures business visibility. So, the first step is calculating the damages and estimating the chances of recovery.

Damages and recovery: what should you know?

Before you give consent to the debt recovery services to file litigation against the slow-paying customers, ask yourself whether it is money-worthy. When weighing the pros and cons of this decision, you need to also calculate the damages and find out whether the client will pay up. Similarly, when estimating the damages, you need to bring all the unpaid invoices together and calculate the total dues. If you got things for rent from the customers and they were damaged, do not forget to factor in the repair costs.

The next step is finding out the financial health of the slow-paying debtor. So, try to focus on the following.

  • Do they have cash in hand?
  • Do they own corporate stocks or bonds?
  • Does the debtor have other debts and liabilities?
  • Does the company have liquid inventory?

The chances are that you won’t prefer getting into such a mess and collecting information about them? So, why don’t you hire professional collection services to help you manage everything effortlessly?

Should you file litigation?

New research reveals that three out of five businesses may be affected by late payments. But does that mean filing litigation is a must? Reports also indicate that about one among these five business owners may not be paying the debt themselves, over 30% of them cannot pay the suppliers and around 33% need to borrow for short-terms to make the ends meet. That is why small and medium-sized businesses are forced to file litigation to recover the money. Survey reveals that there has been a 20% rise in businesses seeking legal help against the slow debt payers. Here is why you need to go to the court.

The pros

A handful of your clients respond to the debt positively to the recovery techniques that the credit collection firm applies. Unfortunately, some need a bit more than persuasion to meet your needs. Therefore, you may have a debt to the nose with an array of unsettled invoices. What then is your take?  Often, all that you need to send the debtor is a letter to make them pay. Before taking the legal step, you need to open a dialogue with the slow-paying customer about your plans to embark on the legal path. But a debt collection firm may better handle such a situation; so, let them take charge before going legal. Businesses avoid being taken to the court for not paying the debt. So, a better option would be to serve them an ultimatum before going the other way round.

Why should you avoid going legal?

If you think that going legal is the best way to take action against the slow-paying debtors, think twice. It is often, the last option that you may seek for business debt collection. Do you know why? The expenses of taking legal action force several companies to opt-out of the system. Moreover, a legal case comes with endless formalities. Added to it, is the complexity of the legal jargon. Overall, going legal is often considered one of the most expensive means of dealing with unpaid invoices, although the charges may vary based on the state. Finally, the business relationship may suffer a serious setback when you embark on the legal path, and the last is that recovery of debt is not guaranteed in this process. You may consult with companies like Nelson, Cooper, & Ortiz to get valuable insights about seeking legal action.

What is the best alternative?

When taking legal action against the unpaid invoices from the clients, the situation may differ from business to business. There is always an option for the debtors to get close to paying the amount in installments. So, you need to instruct the debt collection agency accordingly when chasing the dues. Many of the collection firms prefer to go on the path of mediation to secure the payment instead of hitting them straight with legal action.

If you are considering court proceedings to deal with unpaid debts, make sure that the due amount can be successfully recovered. Debts are different so are the means of recovery. You need to address each one before switching to the last resort option.

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