Business Sphere

     Frank, a businessman who had read my previous post on “Is Credit Bad Or Good For Business” sent me an e-mail, asking for my advice on what to do with some of his customers who refuse to pay their debts long after due dates.

     He told me he operates a department store and extend credit to his customers as a way to boost sales. His problem was he has big accounts receivables now from some of his customers who refuse and fail to pay, even though he and his staff have already tried all means and manner of collection. He said he has exhausted all possible means, and now feel as if everything fails.

     When all else fails in collecting the debts, there is no other way but to resort to legal action. Go to court!

     Going to court as a last resort is the best way to literally force your recalcitrant customers or debtors to pay you, because there are laws that protect the rights of the creditors against the debtors.

     But going to court to collect has also its disadvantages. It can be emotionally and financially draining, as there are court filing, docket and summons fees, and you have to hire the services of a lawyer to litigate in court for you, which is very costly. It is also time consuming and is unpleasant.

     So, before you sue your debtor, you first send a demand letter to him. You sign the first demand letter, giving your debtor some time to pay, say within 15 days upon receipt.  I recommend that your first letter must sound friendly, like reminding him of the past due debts and that payment is necessary to restore his good credit standing and reputation. A second demand letter, which is already the last and final demand in case he still fail to pay, can be prepared and signed by your lawyer, giving your him another period of 15 days within which to settle. Be sure that the debtor acknowledges receipt of the letter by his signature in your file copy.

     And before you go to court, you must know your legal position. Make sure that there is evidence that your debtor has really an unfulfilled obligation. It must be supported by documents, like promissory notes, records, sales invoices, proof of delivery.

     As I said, bringing a person to court is expensive. You should also determine if the debtor you are suing has the capacity to pay, or if he is cash-strapped, whether or not he has still real estate properties and other assets to satisfy the judgment in your favor later on. Otherwise, it may not be cost-effective after all if the debtor is insolvent.

     However, there are times and situations that you have to do it, even if it is not cost-effective, because you have no other option. For if you do nothing, you will find that your accounts receivables and bad debts will grow bigger, leading to business collapse.