As a commercial collections attorney, I cringe when we get a notice like this. Why? Because more often than not, if the client would agree to sue, a collection could be made.

What thought process goes into a decision not to sue? Too often, it's a process that has reached a conclusion without consideration of all the important factors. Let me explain.

Understanding the Lawyer's Role

I present the bias of a commercial collection lawyer who has spent over 25 years representing creditors through commercial agencies around the world. By the time the "claim" has arrived at my office, the efforts of the creditor and a collection agency have been unsuccessful.

Creditors need to understand that a lawyer is not a collection agency. The two provide valuable but distinctly different resources for collecting bad debt.

Agencies do a tremendous service for creditors. They make a highly trained, concentrated effort to motivate a debtor to pay a debt. They use all of their weapons of organization, follow-through and persuasive powers to impose upon a debtor something that the debtor has avoided, paying the account. There are times, however, when the debtor refuses to honor the invoice in spite of the finest efforts of the collection staff. Perhaps there is a bona fide dispute. Perhaps there is a real cash flow problem. Perhaps there is nothing more than a debtor looking for a free ride. Whatever the reason, by the time the claim shows up in the attorney's office, the resources of the client and the collection agency have been exhausted and the debt remains unpaid.

The claim is forwarded to a lawyer because the lawyer brings to the table new and expanded tools to use in the collection process. Clearly the most important of those tools is the ability to file a lawsuit.

The Power of the Lawsuit

What makes filing a lawsuit such a powerful tool? Up to the moment of filing the suit, the debtor has not had to make any choice other than whether to make a payment or not.

Once a lawsuit is filed, however, the debtor is faced with a new decision. Should he pay money to retain a defense attorney or should he put that cost toward paying the bill? Occasionally a debtor may need more time in order to "get his ducks in a row," so to speak. Under those circumstances, he may still find it economically reasonable to hire a lawyer to at least delay the inevitable. One way or another, the creditor will have to abandon his position of stubborn resistance and act. But, if the creditor decides against authorizing the suit the entire process is short-circuited. The debtor avoids the dilemma of making this decision. He wins the game and goes home with all the marbles.

Consider This

So, why do some clients decline to sue and, instead, instruct the attorney to close the file?

Often creditors forego filing a lawsuit because they are concerned about getting tied up in the proceedings. Actually, once the litigation process begins it really does not involve much time or attention from the creditor - assuming that the creditor is using the services of a skilled collection lawyer specialist and has sent sufficient back-up paperwork.

Another deterrent to filing suit is the creditor's unwillingness to send a witness to trial. If the case is filed and the matter must proceed to trial because no settlement is reached, yes, it is best to have a witness from the creditor. However, there are also many occasions before the case gets to that point that a good, experienced collection attorney can proceed without a creditor's witness. These opportunities are lost when the creditor says they will not even begin the suit.

In either case - whether seeking to avoid involvement or sending a witness - the creditor is making a decision without understanding the process or considering all the facts.

There are several dates in the litigation process that create settlement opportunities. The filing and service of a lawsuit is certainly an important one. Why would a creditor give up on the collection of the debt which might result from merely filing a lawsuit ... particularly when the creditor incurs no greater expense than a filing and service of process fee? Clearly, they shouldn't!

The setting of a trial date is another settlement motivation date. Almost all parties, debtor and creditor alike, do not want to go to trial. Everyone is strongly motivated to resolve the claim when a trial date is finally set. However, a creditor loses this settlement opportunity by opting not to sue.

You see, most cases never go to trial. Nevertheless, a trial date is a lawyer's best settlement tool. Why? Because it forces the issue. It requires the debtor to finally decide - pay up or face legal action. We're all familiar with the "settlement made on the courthouse steps." It's a fact that more than 90% of ALL lawsuits are settled before trial.

Press Your Advantage

If recommended by counsel, the creditor should sue, unless their case is not bona fide. Generally, only good things - collecting their account - come from the commencement of a lawsuit. The creditor should not forego this opportunity to recover what is his by giving up without using all the tools at his disposal.

And, in any event, the creditor can always say, "don't go to trial" - which may be a much more informed and better choice than not to file suit.

*****

Martin F. Goldman is the principal of a commercial collection specialty firm located in Los Angeles, California. For more than 35 years, Mr. Goldman has concentrated his practice in the collection field. He is one of only eight lawyers in California to carry the American Board of Certification designation of "Certified Specialist in Creditors Rights." He has been a speaker at numerous Bar Association Continuing Education and industry organization programs.

Credit-to-Cash Advisor is sponsored by ABC-Amega Inc. - providing effective accounts receivable management and commercial debt collection services since 1929.