In light of the COVID-19 pandemic, many businesses have not been paid for months by customers, vendors, clients, etc. Business owners and companies may have already determined that any attempt to collect on their account receivables is a lost cause, but nothing can be further from the truth. Businesses have begun to reopen their doors and the exchange of commerce is still ongoing, though not at pre-COVID-19 levels. If the debtor is still an active and operating business/company, there is still the possibility of getting back some or all of the monies owed. In the midst of a global pandemic, business owners and companies should not give up on collecting what is lawfully owed to them.
1. Send a Demand Letter on Your Attorney’s Letterhead to the Debtor
Though it may appear cliché to send such a demand letter, it will put the debtor on notice of what is owed and show the debtor the creditor has not forgotten about the debt and that the creditor is aware of its lawful collection rights. Such a letter should include a deadline for the debtor to respond, and how the debtor can make the required payment to zero out the balance due. Prior to the payment deadline, the creditor’s counsel should reach out to the debtor in an attempt to resolve the matter.
2. Do Not Hesitate to File a Complaint
If the debtor fails to respond or any subsequent settlement negotiations are unsuccessful, the creditor may proceed with the initiation of a lawsuit.
If the amount owed is less than $10,000, the creditor can proceed to small claims court. There are complaint forms each respective California county’s Superior Court has that just need to be filled out, and any supporting evidence can be filed along with the Complaint. It is important to know that a creditor must represent itself in small claims court. Its counsel can be present, but counsel cannot make any argument.
If the amount is above $10,000, the matter will proceed before the appropriate Superior Court, and the creditor is allowed to be represented by counsel.
3. The Complaint Allows the Creditor to Conduct Discovery
The initiation of a lawsuit allows the creditor to propound written discovery upon the debtor. Such discovery could pertain to the debtor’s financials, banking partners, and include a request for an explanation as to why the debtor has failed to make the required payment. Further, the creditor is allowed to notice the deposition of the debtor, which would require the debtor to appear and testify under oath.
4. Settlement Options
It is critical for a creditor to understand what it really expects monetarily from the debtor to resolve the matter. For example, if a creditor is owed $12,000, does it expect to recover the entire amount and nothing less, or is it willing to take less to put the matter behind it?
Any settlement agreement can permit payments to be made over time or in a single lump sum amount. If a creditor does agree to take less than what is owed, it should attempt to obtain a stipulated judgment as part of the settlement agreement. For example, if the total amount owed is $20,000, and the settlement is for $12,000 where $1,000 gets paid on the first of each month, the stipulated judgment would allow the creditor to go to Court and obtain a judgment against the debtor for $20,000 minus what has already been paid. A stipulated judgment is an effective tool to place continued pressure on a debtor to timely make payments per any settlement agreement.
Additionally, the creditor should request a personal guarantee from the debtor’s owner to ensure payment is timely and properly made. If the debtor breaches the terms of the settlement agreement, the debtor’s owner will then become personally responsible for the amounts due and owing.
Attempting to recover lawfully owed receivables requires persistence and fortitude. A debtor will obviously try to create delays and put up roadblocks. Ultimately, the creditor must decide how it wants to proceed with its collection efforts and what it is willing to accept to resolve any dispute.