As a small business owner, you need to be incredibly careful about cash flow. You cannot afford to entertain too many deadbeat customers who don’t pay their bills on time. So what do you do with a customer who doesn’t pay despite your willingness to try to work things out? Is it worth your trouble to sue?
Small businesses and sole proprietors have the legal right to sue deadbeats in an attempt to get them to pay. Whether or not that is the right move in your case depends on the circumstances. It is smart to learn everything you can about how judgments work in your state before you make a decision. Needless to say, state laws vary.
Lawsuits Result in Judgments
If you were to sue that deadbeat customer, your goal would be to extract what you are legally owed. But you are also going to have court costs, attorney’s fees, and other financial obligations that arise out of the decision to sue. Most states allow you to take those costs on to the customer’s bill. But verify that first because if not, you may not recover enough.
Should you win your case, the court will enter what is known as a judgment. A judgment is an official court order that recognizes the debt’s legitimacy and the debtor’s obligation to pay. That is as far as the courts typically go. Except in rare and extenuating circumstances, creditors are left to enforce judgments on their own.
There Are Statutes of Limitation
You also need to know that most states apply statutes of limitation to court judgments. Usually, it is between 7 and 10 years. In Utah it is 8 years, according to Judgment Collectors out of Salt Lake City. If you were to win a Utah case, you would have 8 years from the date of the judgment to collect what you are owed. You could renew at the end of the eighth year if necessary.
Collection Agencies Differ
Once you understand the legal implications of suing, you also need to consider that collection agencies often differ in the way they go about business. You might choose one collection agency that offers to buy the outstanding judgment from you. Such offers are always less than face value, sometimes considerably less.
On the other hand, you might run across a collection agency that offers to take the case on contingency. You pay a portion of the total amount collected – but only if collection is successfully made. There are pros and cons to each model.
There Is a System
One last thing to note is that there is a system to follow. For example, you would have to serve notice on the debtor once you instituted the lawsuit. Most states give debtors as much as 30 days to respond to service. So right off the bat, your initial action creates a one-month delay. There are going to be other delays built into the system to make sure that no one’s rights get trampled.
What is the point in telling you this? To let you know that it could take up to a year (and perhaps more, in some cases) to get civil litigation settled. Then you or your collection agency will have to spend more time collecting the actual debt. It is not something you are going to finish in a few weeks.
Is it worth your trouble to sue a deadbeat customer? Perhaps. It depends on how much the person owes you and whether you want to put in the time and effort to recover it.
