Any business that sells on credit has, at one time or another, contemplated taking a customer to court over unpaid invoices. Once you do make that consideration, you can feel like you’re stuck in between a rock and a hard place. No one wants to go to court and you’re fearful of upsetting a customer, but in all reality you really need to collect the money that is due to you. Now you have a big decision to make; do you sue the customer, or write the invoice off as bad debt? It’s not an easy decision.
If you’re going to take a customer to court, you have to make sure the ROI of doing so will be worth it. A lawyer may not be necessary, but if they are, tack those fees on top of court fees, filing fees and any other legal fee that will begin to add up. Further, there is a chance you still won’t get paid even if you win the case so it’s important to decide how likely you are to collect once the case if over. Here are a few things to think about according to an article on InsideARM :
- Is the company likely to still be in business by the time we can start the judgment collection process?
- Does the business appear to have cash flow or assets that would enable successful collection?
- Are there any secured creditors which would make collecting difficult or impossible?
- Are there other liens or judgments that could make it more difficult?
- Is there personal liability as a result of the corporation status being revoked, a personal guaranty, or is the business a proprietorship?
- Does the person with personal liability have assets or income that could satisfy a judgment?
- Does the business owner have personal assets to inject into the business, even if they don’t have personal liability for these specific invoices?
- Can we locate the company owner and/or guarantor for judgment collection efforts?
Taking a customer to court is not your only line of defense, either. There are some proactive approaches you can take before it gets to that point. This can be done in many ways:
- Use business credit management best practices to ensure you’re only offering credit to customers who deserve it.
- Make it a point to work on eliminating invoice disputes by improving your credit and collection process and strategies.
- Send collection letters, along with a final notice of legal action before attempting to go to court
- Consider implementing a credit and collections software solution. This has helped numerous companies reduce DSO, bad debt write-offs, disputes, and unpaid invoices.
We are not a legal firm, so be sure to talk with your legal advisor before you make any decisions about taking a customer to court for unpaid invoices. We think, and many lawyers and collection agencies tend to agree, that the best thing to do is find a way to collect what is rightfully yours without litigation if possible.