If you are looking to collect a debt owed to you or your business it is important to understand at least the generalities of debt collection. For instance, what type of debt are you holding? Typically, debt falls under one of two (2) large umbrellas; it is either commercial (business) or personal (often referred to as “retail”). Obviously, a commercial account relates to a business’ goods, service, merchandise, etc. being provided to another business who fails to pay for it, while personal or retail debt generally has an individual person as the end user (eg. Credit card or medical debt).
While there are basically two (2) types of debt, there are generally three (3) types of debtors that you will encounter in your pursuit of collection. First, there are those that will acknowledge the debt and know they owe the money, but just don’t have it. In this instance, you might want to try to work out a payment plan with them, if possible. Afterall, something is better than nothing. If you don’t trust that they are insolvent, it is not out of the question to ask for documentation of their financial situation (eg. Bank statements, copies of judgments, tax returns, etc.). If they are offering nothing and have nothing, then sometimes it is better to just write it off as bad debt and move on. There is a saying in the industry that you “do not throw good money after bad”, and that is a true statement.
Second, there are those contested claims where you and your debtor have a difference of opinion as to what transpired and they dispute all or part of the debt. If they have a legitimate dispute, then you need to look at that situation objectively and maybe swallow some of your pride and “make it right”. If you decide to go to court and you know that you are in the wrong, the truth will come out. Why waste the time and money. However, if they are wrong you need to have your documentation in order (eg. Proper invoicing, signed bills of lading, etc.) because in a court of law more times than not it is the party with their “I”s dotted and “T”s crossed that will win. Either way, put your ego aside and try to work something out. I have had many a client “go the distance” refusing to settle because it was “the principle” and end up wishing they had taken the first deal on the table because they either didn’t have as strong a case as they thought (despite warnings!) and the judge looked as both sides, not just theirs, or the debtor didn’t have anything more to give.
Third, unfortunately there are business people (men are not the only ones) in this world who look at any transaction or endeavor as a numbers game and they will go to any lengths to beat your company out of 5, 10, 50, 75 percent if they can because that means money in their pocket as opposed to yours. They may dispute it (even though they have no basis to) or they may not, but they are not going to pay you, at least without a fight, unless or until they have to.
These debtors need to be sued…now! Otherwise, you will get strung along for months or even years without satisfaction. Get them into court and in front of a judge as quickly as possible and get your judgment. Even after a judgment you need to set about the task of trying to collect upon it which we will cover another time.
The key to your collections is to know your debt. and your debtor, and approach it accordingly as not all debts or debtors are created equal. Some will require you to listen, others to yell, and some to take action. What is important is recognizing the situation and judging yourself accordingly. Good luck!