Before You Sue

If you have a customer who has used your services but refuses to pay, you are understandably upset. You may be considering legal action, and who could blame you? However, even though you may be justified in wanting to sue, filing a lawsuit may not actually be worth your while.

Consider circumstances such as those described in a flow chart from the Kaplan Collection Agency on when it’s appropriate to pursue litigation against a customer. All three elements: a good case, no viable alternatives and a realistic prospect of collecting all or most of what you are owed must be present. If not, even though you may feel resentful and angry, you must seriously reconsider filing a lawsuit.

How Good Is Your Case?

To prevail in your lawsuit, you must demonstrate each of four elements: the existence of a valid contract, performance, breach and damages. If any of these four elements is missing, your case is almost certain to fail in court. In some instances, these four elements are easily established, but not always.

 If you have a contract drawn up by attorneys and signed by both parties, you will almost certainly be able to prove that you have a valid contract. Contrary to popular belief, an oral contract or a “handshake” agreement may be valid. However, if the other party disputes its existence, you’ll have a hard time proving your claim.

You must also prove that your performance was in compliance with the contract, while the other party breached the contract.  In other words, you must demonstrate that you upheld your end of the bargain, while the other party did not. You may consider this point obvious, and perhaps it is – but then again, a judge or jury might not agree.

Finally, you must prove that you actually suffered damages. In a case where a customer has failed to pay you for services rendered, this point is usually obvious. The law assumes that not being paid for your work has caused you harm.

Are There Other Viable Alternatives?

You may want your day in court, but if you can collect the money you are owed without filing a lawsuit, you should seriously consider doing so. Lawsuits are time consuming and expensive.  You could literally wait years for the case to make its way through appeals and other hurdles. If you can settle your case by mediation or arbitration instead, why not collect what you are owed and move on with your life?

Will I Actually Collect Any Money?

The term “not worth the paper it’s written on” is an accurate way to describe winning a judgment against someone who is insolvent. Even if you have an iron clad case and the other party refuses to negotiate, bringing a lawsuit is fruitless if the other party is judgment proof. One exception would be if you have reason to believe that the other party may come into a sizeable sum of money at a later date. In such cases, having a judgment in place makes it that much easier to collect the money you are owed.

Dan Barnett is Business Development Manager at Kaplan Collection Agency. In his spare time, he likes to share his know-how with others by posting online.

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