In accounts receivable collections, after you call the customer, whether you should sue or settle will depend on his response. In this article, we’ll discuss different responses you’ll receive, and whether litigation or diplomacy is your better option.
AR Collections When The Customer Ignores You Or Refuses To Pay
Customer A is either ignoring your calls, or just refuses to pay. Here, he’s making your decision easy. Since you’ll only get paid if you sue, a lawsuit here makes sense if it’s collectible and cost-effective.
AR Collections When The Customer Can’t Pay Or Has A Good Faith Dispute
Customers B and C are different. B wants to pay but is having financial trouble, and C has a genuine dispute. Both are acting in good faith.
If B just has a temporary cash flow issue, try to work things out with a payment plan. But if you think he’s going out of business, either settle quickly for an immediate, discounted amount, or sue and pursue assets aggressively.
On the other hand, consider compromising with C, even if you don’t agree with him. In a good faith dispute, a settlement has many benefits: first, it eliminates the expense and uncertainty of litigation; and second, suing will kill your relationship, while compromise may preserve it and result in future sales.
AR Collections When The Customer Tries To Renegotiate
Finally, Customer D takes your call and says he has a problem with your price. He originally agreed to it, accepted your product or service, and is now trying to cut a better deal. This presents a dilemma.
On the one hand, viewing the case in a vacuum, you’d weigh his offer against the time, expense, and uncertainty of litigation. Maybe you’d take the money and never do business with him again.
But the offer’s improper, and you don’t want others to see you as an easy mark. At some point, filing a lawsuit can send a strong message to other opportunists, even if you settle the suit later.
For more information on AR collections, or if you’d like to discuss a specific collection issue, call me at 856-667-1669 or contact me here.
This material is for informational purposes only and should not be construed as legal advice. No person should rely on this information without seeking the advice of an attorney.