In this PCM Corp blog post we will look at when to sue for overdue payment and when not to sue.
Is Litigation Worth It?
Not getting paid by a customer can be an exhausting frustrating experience. You decided to extend your customer terms in which to pay, provided goods or services the best way you could, and then your customer informs you they are unable to pay, or worse gives you the silent treatment.
Whether you take your customer to court yourself, hire a lawyer or hire a collection agency to do so, the purpose of the investment of your time and court costs is to get payment from the customer.
Unfortunately, most people’s emotions blind them to the fact that their customer is insolvent or no longer operating, and they spend substantial time and resources on litigation for zero return on investment.
Cost vs Outcome
Almost daily, we hear customers tell us that they want to sue their slow-paying account holder because of "the principle of it".
Thirty-five years ago, when I first started in the collection business, I recall saying that exact phrase to our in-house counsel and his response was, “No problem. How much principle are you willing to spend?” That response stuck with me ever since. Our job is to send our customers cheques, not more bills. A debt collection provider’s responsibility is to recover funds owed, not make a bad situation worse.
Contrary to popular belief, a court judgment does not guarantee payment. The potential to collect on your judgment is directly proportional to the equity in assets and credit quality of the Defendant, your customer.
The Benefit of Hiring a Professional Debt Collector
The advantage of using a professional debt collector to recover your delinquent debt lies in the standard compensation model of “No collection - No fee.” Using this compensation model, your interests and that of the collection firm, are aligned. If the agency is unable to find a way to collect, they do not get paid.
A professional collection agent will perform the asset investigations necessary to develop a profile of your customer. The agency is looking for equity and assets, non-restricted cash flow, unencumbered assets, and receivables of your customer, to name a few.
Go vs No Go-Pursuit of Judgement
A professional collection agency will develop a business case to discern a Go – No Go status regarding litigation, and whether it is a good investment of your hard-earned dollars.
Sometimes the agency will develop bad news and recommended a “No Go” position concerning the pursuit of a judgment. Other times, all indications are a “Go.” In this circumstance, the agency should provide you with a business case to consider. We call it a Permission to Sue document, where costs are outlined, and post-judgment remedies given.
Now you have the objective opinion of a third-party professional if the investment in a lawsuit will prompt payment. Again, the agency only gets paid when you do - unlike expensive law firms.
Collecting on a Judgment
The conventional methods of collection on a judgment include a Notice of Intention to Sell real estate, which is similar to a foreclosure, garnishing of wages, bank accounts or receivables and seizure of assets.
If there is more than one judgment creditor against a defendant, then the creditor, which began the enforcement, gets the first $2000 and the remainder gets paid into court and split amongst the judgment creditors based upon a pro-rated distribution with the most significant creditor receiving the majority of the funds.
What to do BEFORE you Sue
Before you consider legal action, we recommend obtaining a personal property registry search through your provincial government office or private registry. This report will tell you if your customer’s assets are held for security by a financial institution. The report will also show you if your customer has other judgments against them.
Further, we suggest checking to see if your customer owes Canada Revenue for taxes and unremitted source deductions.
And finally, if your client owns their premises or residence, obtain a copy of the title to the property to confirm ownership and determine equity.