Now that you have a judgment against your debtor, did you think they were just going to hand you the money? Sometimes they do, but most of the time you have to go get it. Afterall, a judgment is just a piece of paper that says X owes Y money. Like an IOU, and if they don’t make good on it, then you have to go collect it.
At this point you could go hire an attorney or turn it over to a collection agency, but why? You’ve already done all the hard work. What you need is called a Writ of Execution. It is a form that allows you to actually act on the judgment you have. It allows you to execute on it (thus “Writ of Execution”). Again it will likely vary by state, but it will generally be a pretty simply one page form with a proof of service by mail on the back. It will ask for your debtor’s name and address. It will ask for your judgment date and amount, and then you could probably tack on the cost of the Writ (find that out when you get the form, but it should be nominal) and interest from the date of the judgment (post-judgment interest). Fill out the debtor’s mailing information on the back (you will have to sign or have another person sign and mail it for you after you get it back from the court). Make copies (always have copies), and file it. When you go to file it they will give you an original copy back. That is what you need to move on to the next step. Execution!

If you do chose to jump into the deep end of the pool, good for you! It’s not that hard if you know how to swim. Generally, speaking litigation in small claims is a pretty simple game. It should be. In fact, they try to make it that way. It is designed for the lay person or the “average joe”. You should look at it in two (2) parts: pre-judgment and post-judgment.
PRE-JUDGMENT: The process is this. File your complaint, serve it, and go to the hearing…prepared. First, you are going to have to go online or down to your local courthouse. If you go down to the courthouse, see a civil clerk and tell them that you want to file a small claims action and you need the necessary forms. Technically, they are not allowed to give legal advice, BUT sometimes if you are nice, put on a smiley face, and act dumb they will help you out if you have any questions.
Once you have the forms, obviously, you need to fill them out. They will generally have instructions attached, but the most important things to keep in mind here are: who you are suing, why you are suing in that particular court, and amount you are suing for, and why.
First, who you are suing may seem simple at first, but it’s not always. You need to get the entity correct. For instance, if you are selling to a company called “ABC Company” and the person you deal with is Neal Johnson. Do you ABC Company, Neal Johnson, both or neither? The reason this is important is because if you sue the wrong person or entity it could possibly delay your case or more importantly affect the collectibility of your judgment later down the road. For this you may need to do a bit of research. Most states have a Secretary of State website where you can search for corporations by name. Is your debtor listed? If they are not there, you can try your county or city clerks office and ask for the business’ “fictitious business name statement” or “dba”. That will generally tell you who the owner of the business is. Even if it is Neal Johnson you are dealing with, it might be Joe Smith who is the actually owner. Sue Joe. You want the owner, not his employee(s).
As far as picking the court to file this in, this is important because the court has to have what is called “jurisdiction” so that they can legally hear the case. Basically, it has to be in THIER geographical area. Generally, this doesn’t mean your geographical area, it means the debtor’s geographical area. This can all get very convoluted, but generally speaking, if you file in the court nearest the debtor you should be good. Just check with the court first and give them your debtor’s address so they can confirm it is in their jurisdiction.
Of course, you want to state the basic facts of your case, but you also want to make sure you state the amount that you want specifically. Oftentimes, if you don’t know, then how is the judge to know.
Now that you have the paperwork filled out, make copies, pay the filing fee and file your complaint. Once you’ve got the “conformed” copies, you have to have them served. Some states may allow service by mail, which is great, but most will require that a process server do it for you. It is best to have a licensed process server do this so that they can give you a “proof of service” document so that you can prove to the court that your debtor was served if he doesn’t show, which happens regularly. The local Sheriff’s department will often have a civil division that will serve your paper for a small fee. Otherwise, hit the yellowpages and look for “attorney service” or “process servers”.
Before your trial date arrives, it is a good idea to go down to the courthouse and sit in on a small claims session so that you can see what happens and how the court operates. This will also take away some of the anxiety of the unknown on the day of trial. Don’t worry. You will be fine. You have the law on your side.
On the day of trial, please do yourself and everyone else a favor. Be prepared!
Have your documents in order. Have any originals and at least two (2) copies (one each for the judge and the debtor) “marked”. This is something you may want to find out when you go on your scouting mission. For example they might want them as A, B, C, etc or 1, 2, 3, etc.. Each court has their own system. Make sure that if you have any witnesses, that they are there and informed. Do you know what the debtor is going to say? How are you going to refute it?
Every judge is different, but most are going to conduct this the same way. You will tell your story first (without interruption), the debtor will tell their story and try to refute yours (without interruption), you will get a chance to rebut again as will the debtor until the judge has heard all he wants to hear.
The judge will generally allow each party to speak uninterrupted by the other party, but it is also natural for him to interrupt to ask questions along the way. If you want to stay on the judge’s good side (and I suggest that you do), DO NOT interrupt the other party or him, especially. Also, be as clear and concise as you can be and stick to business. The judge doesn’t need to hear that you think the debtor is an @)*$)*%#. First, he can form his own opinion and doesn’t need yours, and second, it is irrelevant. Trust me.
WHEN you get your judgment, make sure that you’ve calculated your court costs and service of process fees and that they are included, as well as interest. These are all items that are usually part of any award. Your interest would be calculated from either the date of last charge (if on account) or date of breach (if contractual). Most likely, the court will mail a Notice of Ruling or Judgment to you in the mail, but some courts may require that you submit a judgment form with all the figures included.

Either way, once you obtain your judgment, you are only half way to getting your money. Congratulations are in order, but the real celebration must wait. Our next article will discuss the in and outs of actually collecting upon your judgment.

Once you have an account go into arrears what do you do?  First, you gather all the documentation.  Primarily, that means Statement of Account, Invoices, Airwaybills, Bills of Lading, etc., basically, proof of your claim.  Secondarily, it is good to gather any e-mails or other correspondence that may relate to your claim.  For example, your debtor may have sent one of your employees a e-mail two months ago stating that there was a problem with your widget that you sold to him and he was not going to pay until it was fixed, and the correspondence was lost somewhere between Crisis 10 and Crisis 122.  Maybe he has a legitimate beef, maybe not.

Hopefully, you’ve established an account profile which has your client’s (now debtor’s) company information that we discussed earlier (ie. Address, bank information, etc.).  You should pull that together along with any correspondence and make a file.  Once this is established, simply place a call to them.  This way you will hopefully find out what type of debtor you have on your hands and you can develop a strategy as to how you want to deal with him.  If they want to pay, but have they do not have the cash flow to pay all at once it is probably advisable that you try and work out a payment arrangement out with them.  If you don’t, then your alternative is going to court, probably obtaining a judgment a few months down the road, and then trying to collect on that judgment.  If what they are telling you is true, that they have no money, then you will not be able to collect upon the judgment and you will be back trying to negotiate a payment arrangement when their cash flow is worse and you’ve spent your valuable time and money going to court when you could have had a few months worth of payments in your pocket.

If you call your debtor and they don’t want to pay, your immediate instinct may be to shout some explicative and hang up the phone.  Don’t!  Instead, listen intently and question them thoroughly as to why they do not feel like they owe any money.  Questions like “what was wrong with the product/service”, “when did you know there was a problem”, “who have you told”, “when did you tell them”, “did you put anything in writing to them/us”, “did you do anything to correct the error”.  This is not the time to start an argument or make your own admissions, this is simply a time to gather information.

From this time forward be sure to document all conversations (who, what, where, why, when) and correspondences.  If relevant, you should also take pictures of any pertinent product, etc. and/or interview all those with information or knowledge as to what happened, so that it is documented now nearest the time of the transaction and more freshly in people’s conscience rather than later when information can be forgotten.  This may also make it more creditable with the judge later if it comes to that.

Once you have had the opportunity to process the information you can devise your plan as to how you want to proceed.  If they have a legitimate “beef” then maybe you can call them back and work out a discount.  Hopefully, things can be worked out and both parties feel like they were dealt with fairly, the communication was good, and the working relationship has been preserved and possibly even strengthened when the other side sees how fairly you have dealt with them.  There is certainly value in preserving certain business relationships.  It makes no sense to lose a $10,000.00 account over $200.00. So be careful, and know when to make concessions and who to make them to.

If they do not have a legitimate claim, you have to decide whether this is something worth taking to court.  Small claims limits vary between $1,500.00 and $25,000.00 depending on your state, but most are around $5,000.00 (you can contact your local court and find out).  If your claim is above your states small claims limit, then you should seek counsel and/or a licensed accredited collection agency.  Generally speaking, you can represent yourself and file your case in most any state court of unlimited jurisdiction, however, judges WILL hold you accountable to an attorney’s standard in knowing the laws and rules of court.  If you don’t, then you place yourself at a serious, and potentially costly, disadvantage.

Small claims, however, is another matter.  It is set up for the average lay person with a relatively small civil matter to have their arguments heard.  So the rules are more relaxed and the process is more streamlined.  There are still rules and procedures though, so it is best to be organized and prepared.  That is what we are going to try and accomplish next.

This was an old Benjamin Franklin saying, but it is as true today as it was then, especially when dealing with your either client or potential clients.  When you set up what may be an ongoing sales or business relationship with another person or business you should always have them fill out some type of credit application/check form with references, bank, and business information on it.  You can find any standard form online and maybe even tailor it to your needs if necessary.

This accomplishes several things.  One, any business or person that has bad intentions will probably think twice about trying to not pay their bill because they are a bit more exposed to you.  Two, it will give you enough information so that you can check and make sure that you are dealing with an established and legitimate business.  You should be looking at things like: do they have a storefront or are they working out of a P.O. Box, are they registered with any associations such as the local Chamber of Commerce or Better Business Bureau, how long they have been in business, business references, etc..   The third advantage is that if you do have to collect you will have their bank account information on file, and bank levy is the easiest and most efficient way to collect on a judgment.

Following this simple process will likely cut down on your accounts receivables and if a business does end up owing you money, it will make your ability to collect that much easier in the long run.  If they balk at the idea, then you might want to ask yourself, or them, why?  Depending on their answer you might choose not to do business with them.  Either way you will know your customer/client a little bit better and the decision is yours with the knowledge you have gained.

This is the second part of a series of articles for small businesses on how to collect your own commercial debt.

The first rule of collections is: PICK UP THE PHONE.  Many people do not like confrontation, or at least the potential of conflict, and will avoid it at all costs.  That will not get you your money.  Plus, no one is saying you have to get into an argument with anyone.  You just have to pick up the phone and call.  Just find out what is going on with your customer.  It may be as simple as their paperwork was lost or they honestly forgot to pay, but you will never know unless you make the effort to find out.  Possibly, they cannot make the whole payment now and were waiting to pay the whole thing at once, at which point you can work out a payment plan with them.  Putting at least some money back into your pocket immediately rather than maybe a few months from now…or more. So just pick up the phone!  It is the easiest way to find out exactly what is going on.  Besides, more times than not you will get an answering machine.  If they do not call you back then you really know where you stand…at the back of the line.

Rule two: know your collection style and who you are dealing with.  What type of person are you?  Hot headed and confrontational?  Easy going?  Shy?  Outspoken?  Whatever the case may be, be who you are.  It doesn’t matter if you are the boss, the boss’ assistant, collection manager, or just the flunky that your boss has doing the dirty work.  You cannot be someone that you are not.

Most all collectors I have know are pretty confident individuals and not afraid to get into an argument and many times encourage it.  However, that is because they must get to the point quickly as they have a certain volume of calls they must reach and numbers to hit, so they are not in the business of wasting time with people.  They call the debtor, push hard, and blow the debtor out if they balk at paying.  Not to mention they have no stake in preserving a business relationship with that person, they are hiding behind a made up “collector’s name” and the agency so what do they care?

Rule Three:  Once you’ve cast the line, let them run with it a bit before you reel them in.  My opinion is that you catch more flies with honey than with vinegar.  Plus, although I have conditioned myself to be assertive and confrontational when it is called for, I am generally an easygoing person.  Therefore, more often than not I will allow a debtor to talk and vent before I reel them in to discuss the actual matter at hand…paying the debt.  A general rule for collectors is to always keep the debtor focused on paying the debt, do not let them go off on tangents as to why they don’t owe or can’t pay or try to sweet talk their way out.  Always bring them quickly back when they try to stray to far.

It is true that at some point you are going to have to get them to address paying the debt, but I like to give them enough rope to possibly hang themselves.  Once they start repeating themselves and/or you feel you have the entire story, then cut them off and find out how they want to take care of the debt.  I look at knowledge/information as power, the more they are willing to give me, the more I am willing to take.  The advantages: a.) you now know exactly what the problem is, b.) chances are they will say something that they shouldn’t have let you know, c.) if you do have to litigate, you already know what issues they are going to raise so you can prepare to refute them (no surprises).

Rule four: know your bounds.  When collectors or attorneys call a debtor they already know going in what their client’s settlement parameters are (ie. Seventy-five (75%) percent of principal over 6 month or anything over $5,000.00 payable within 3 months).  It would also be prudent for you to know going in what you would take in settlement.  That way you know where you are negotiating to or from and you also don’t have to call your debtor back when an offer has been placed on the table and risk not being able to get a hold of him or her again and losing another week or more.

When negotiating standard rules apply.  Make them put an offer on the table first.  Do not negotiate against yourself (make them counter your counter before you re-counter???).  Never take their first offer (it’s usually not their best).  You can always negotiate down, but you can never negotiate up, so start high and work your way down until you can meet in mutually agreeable area.

If a deal cannot be made, then you agree to disagree, and then you make a decision: to litigate or not to litigate.  If a deal can be made then….

Rule five: close the deal.  If you come to a general agreement, do not hang up until the details have been confirmed.  You may find out that your agreement is really no agreement at all until you know exactly how much they are paying, when they are paying it (ie. 1^st of every month), how long they have to pay it (ie. 3 months from today), and who they are paying it to (ie. You or your supplier).  You might also want to have an understanding as to what will happen if it is not paid according to your agreement (ie. No further discounts and/or credit).  This is known as “the hammer” and gives them some incentive to follow through, which is always good.

Rule six: document it.  If you settle your claim at this point, having a stipulation or contract drawn up may be a bit overkill for most smaller debt, but you should definitely send out a “confirming letter” so that you both have documentation as to exactly what you have agreed to.  Besides, it is always good to have your own paper trail, just in case things go bad, which often happens.  You might also place in your letter something to the effect that, “if this is not your understanding of our agreement please notify me in writing immediately” just to be sure.

Follow these simple “rules” and you will be well on your way to cutting down your accounts receivables and maximizing your collection talents.  However, if you wish to have the services of a professional and/or have a buffer between you and your customer/client do not hesitate to call the Law Offices Sakaida & Bui for a knowledgible and experienced collection attorney that will meet all your collection needs.

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!

Welcome to my blog.  My name is Don M. Sakaida.  I am one of the managing partners at Sakaida & Bui.  I have been a collection attorney in the Los Angeles area for nearly 15 years working with and for various collection agencies and representing numerous clients in various industries, including Fortune 500 companies, in their efforts to collect monies owed to them by their clients.  Before that, I actually worked in a collection agency as a collector and legal assistant.  So I am fairly well versed in the realities of this industry.   I want to bring to you some of my knowledge and expertise to help you improve your business’ collections, and if by chance you happen to need or want an attorney to handle some of your accounts receivables then give us a call.