Negotiating with Debtors to Avoid Lawsuits: 4 Tips to Try
No small business relishes the thought of going after deadbeat customers who don’t pay their bills. Debtors are the bane of existence for many a small business owner who tries to be patient. Sometimes that patience is rewarded with a response that leaves no other choice but to head to court. Still, lawsuits should be avoided whenever possible.
Civil lawsuits are time-consuming and expensive. And even when a creditor wins, there is no guarantee of being paid. Winning a civil lawsuit only means getting a judgment entered against the debtor. But a judgment and actual collection are two separate matters.
JudgmentCollectors.com is a collection agency that specializes in civil judgments in states like California and Arizona. They operate in 11 states. They explain that collection can get messy. They also say that avoiding it altogether is the best way to go. If you own a small business, here are four things you can try to that end:
1. Clearly Communicate a Desire to Work with the Debtor
The easiest thing for small businesses to do is send yet another bill. As the process drags on, subsequent bills include warning notices. But sending one bill after another does not always get the best results. So try clearly communicating your desire to work with the debtor.
Instead of sending a third or fourth bill, try sending a letter explaining your position. Be respectful and polite. Let the debtor know that you want to avoid going to collection or court. By expressing a willingness to work with the debtor, you might encourage them to respond in kind.
2. Be Willing to Set up a Payment Plan
Next up, you might try attempting to set up a payment plan with the debtor. Even if that means you will only get paid a little bit each month, something is better than nothing. The thing about civil judgments is that the vast majority are never paid. So it’s better to work out a payment plan than go through the hassle and expense of a lawsuit only to get nothing in return.
3. Try to Be the Peacemaker
Collecting unpaid debts can become an exercise in confrontation. But remember, you are trying to avoid legal action. If it comes to that, court is the place for confrontation. Until then, try to be the peacemaker.
Being the peacemaker means always keeping your communications polite and professional. It means refraining from aggressive language that could be perceived as a threat. And by all means, never threaten a debtor in any way, shape, or form.
Federal law prohibits threatening debtors in order to get paid. So if the language in your communications is too aggressive, you could have a bigger problem on your hands. It is yet another reason to try to be the peacemaker.
4. Offer an Incentive to Pay
You can also offer debtors an incentive to pay up. Two suggestions that immediately come to mind are:
- Offering to accept less than full payment to get things squared away.
- Offering to waive interest and late fees if the full amount is paid.
Some small businesses see offering incentives as capitulation. A better way to look at it is getting as much as you can rather than going to court and getting nothing at all.
Taking debtors to court should be an action of last resort. Going to court costs money. It takes time and effort. But in the end, it doesn’t guarantee payment. A better way to go is to avoid lawsuits altogether. Staying out of court makes the entire process easier on everyone.
