When a customer misses payments, it can be a top concern for your business’s profitability. If you need to collect and recover debt, you should explore all resolutions before it escalates to a litigation case.
You will want to start by identifying the risks and determining if your situation will be successful. For example, what is the debtor’s financial situation? What are their business assets? Sometimes, you can settle disputes before taking them to the courtroom, and therefore, you could save time and litigation costs.
If you are wondering where to begin, a business lawyer can advise you on the exact steps to take, whether you are in the pre-litigation stage or a legal battle.
Here are four collection strategies to implement before pursuing a litigation case.
Conduct Background Research On The Debtor
First, you will want to do background research on the debtor and their business. For example, is their debt consumer-based or commercial-based? If it is of consumer nature, such as for personal or family use, it is a debt protected by the Fair Debt Collections & Practices Act (FDCPA). This means you would need to abide by their practices when you or the debt collector are contacting the consumer. On the other hand, commercial debts are not covered by this act.
Next, look up the customer’s information to ensure it is up to date, such as the business address, phone number, and owners’ names. You should research if the company is a registered corporate entity or if it is no longer operational. You can also check into the business’s financial health by running a credit report.
A business lawyer would help you navigate through these initial stages and look into the debtor’s court records to see if they have any previous lawsuits.
Research The Business Assets
To gain one step further towards a settlement offer, you should make sure the debtor’s business assets are legitimate and suitable for negotiations. Your business lawyer can help you investigate the following:
- What does the debtor own? Do they own land, equipment, vehicles, or facilities?
- Does their business have any liens?
- What is their financial situation? Does the debtor have a guarantor that is liable for the debt? Have they filed for bankruptcy?
- Has the debtor opened another location under a new corporate entity? Are they still liable for the original business debt from the previous location?
- Have they sold any assets?
Establish Contact And Attempt To Collect
Once you have gathered all your research, initiate contact with the customer to collect the debt, and use multiple channels to reach them. You can begin with a collection letter outlining the contract provisions, outstanding debt balance, and action required. You will want to make it clear to the debtor that they should make a payment or reach out to the designated contact to move forward.
Once the first letter has been sent, follow up with phone calls to the debtor. Again, pay attention to the customer’s response or lack of response, as that can determine the following: resolution or legal action.
Begin Dispute Resolution
If the debtor responds to your collection attempts, you can begin the resolution process. You can offer the debtor to do any of the following:
- Make a lump-sum payment
- Set up a new payment agreement
- Opt into a forbearance
Consult with your business lawyer to set up a settlement agreement that is legally binding for both parties. This contract would confirm the final amount and consider the debtor’s assets and liabilities.
Even if you do not reach a settlement with your debtor and proceed to court, these pre-litigation strategies will prepare you for the challenges ahead. Gathering research, communicating consistently, and setting up the resolution will determine success for your business.
If you need further information on how to proceed in the pre-litigation phase, our team of attorneys is here to help. We can assist you through the dispute resolution process so you can recover debt and continue as a profitable business. Request a consultation with our litigation team today.