For years, I have represented many businesses who are challenged by non-paying customers. Unfortunately, it is overly optimistic to assume that all customers will pay without legal intervention. The reasons can vary, but debtors either choose not to pay or they simply do not have the financial ability to pay. As a Pennsylvania collections attorney, I often bring lawsuits against these debtors for the purpose of obtaining a money judgment on behalf of my client. The threat of a lawsuit is usually enough to convince a debtor to pay; however, when the debtor still refuses to pay, it becomes necessary to obtain a money judgment. Once a money judgment is obtained, I can proceed with legal means to enforce the judgment which includes finding assets of the debtor and seizing those assets to satisfy the judgment.
The decision to bring a lawsuit is sometimes not an easy decision. My clients must evaluate the litigation costs and other factors to determine whether it is in their best interests to engage in litigation. Even when the money judgment is obtained, enforcement of the judgment can be challenging for even the most aggressive Pennsylvania collection attorneys when the debtor has no assets to satisfy the judgment. On the other hand, if the debtor is choosing not to pay and has assets to satisfy the judgment, a good collection lawyer will utilize various legal methods that are effective.
There are basic, but very effective strategies that businesses can implement on their own that can make the decision to litigate much easier and to increase the likelihood of successful collection efforts. The list of measures that can be taken to increase collection efforts is very broad; however, the following three tips are very effective in assisting a Pennsylvania collections attorney:
TIP #1 – DUE DILIGENCE
All businesses selling goods or services should use a written contract with its customers. At a minimum, the written contract should include a description of the goods or services being purchased, the purchase price, identification of the parties, and the signatures of both parties to the contract. Before entering into a contract with a new customer, businesses should do their due diligence on the customer in advance of the contract. It is extremely important to have as much information about the customer prior to doing business with them. For example, due diligence efforts can help businesses determine the creditworthiness of the customer. Ultimately, it is helpful to know as much as you can up front to determine whether you want to do business with the customer or, in the event of a non-paying customer, the information you obtain will help your collections attorney evaluate the chances of successful collection. Due diligence may include any or all of the following depending on the nature of the transaction:
- Determining whether the customer is a business entity or an individual. For example, if the business name is “John’s Shoes” is that a Corporation or Limited Liability Company or Fictitious Name?
- Obtaining the Tax Identification Number (EIN or SS#)
- Obtaining a current address of the customer instead of a P.O. Box
- Performing a credit check
- Performing a judgment and lien search in a county index, asset search, UCC search and requests for financials including tax returns, profit and loss statements and other information related to assets and liabilities of the company
- Banking information
All of this is easy to accumulate and tells a story about the financial viability of the company. The information will help the business creditor make sound decisions when entering a business relationship with a potential customer to lessen the risk of unpaid invoices. For some businesses, trying to obtain all the foregoing information might be unreasonable; however, it is important for the business to decide what information is useful and appropriate for their business setting. The more information that a business obtains, the better.
TIP #2 – FORUM SELECTION CLAUSE
It is strongly recommended that the written contract have a Forum Selection Clause. A Forum Selection Clause is an agreement that any litigation arising from the contract will be commenced in a specific state, county and/or court. This contract provision is extremely important because state and federal laws dictate where litigation must take place and these laws may not be favorable for the business who is trying to collect payment. For example, if a Pennsylvania company does business with a customer in Texas that defaults on a payment obligation, the laws may require a lawsuit to be initiated in Texas. The Pennsylvania company would rather litigate the matter in its home state. With a Forum Selection Clause that establishes Pennsylvania as the proper forum for litigation, the Pennsylvania company can proceed with a lawsuit in Pennsylvania. Commencing a lawsuit in the home state often compels the debtor to pay or settle the matter because it is too costly and time consuming for the debtor to engage in litigation outside of its home state.
TIP #3 – ATTORNEY’S FEE CLAUSE
Another important feature of a written contract is an attorney’s fee clause. An attorney’s fee clause requires the losing party in litigation to reimburse the prevailing party for its attorney’s fees and costs of litigation. For most cases involving non-paying customers, Pennsylvania law generally does not allow the prevailing party to recover the litigation costs from the other party. Therefore, having the clause in the contract is essential.
There are obvious advantages for my business clients if an attorney’s fee clause exists in the contract. When seeking money damages, the judgment amount will not only include the debt owed, but it can also include the litigation costs. If the judgment is satisfied, the client is made whole. On the other hand, the debtor is forced to seriously consider whether it is in their interests to proceed with litigation if the debtor may face the prospect having to pay my client’s litigation expenses. The attorney’s fee clause creates tremendous leverage in settlement negotiations.
THE MARTIN LAW FIRM – PENNSYLVANIA COLLECTION ATTORNEY
Since 2001, the Martin Law Firm has represented businesses and individuals who are challenged by non-paying customers. Our debt collection lawyers will discuss your case at no charge and help you to determine what collection methods will best serve you. With the assistance of professional investigators, we can perform bankruptcy searches, skip tracing, and asset searches to expedite the collection process. We are experienced with settlement negotiations and we have the courtroom experience to litigate contract matters, when necessary. We can also help you prepare effective contracts to use with your customers. Please contact us today to discuss your case at 215-646-3980.