Hi, my name is Adam Stewart, Debt Collection Expert and owner of ADC Legal Litigation Lawyers.
One of the biggest struggles that many of our clients have when it comes to negotiating a settlement with debtors, is whether to accept a reduced lump sum or simply issue proceedings.
Many creditors are impatient and want to get paid immediately. They are out for blood and refuse to even consider ever settling for a dollar less than the full amount they are owed. However, this often ends up costing those creditors even more in the long run.
It is sometimes difficult to put personal feelings aside in order to make a decision that will be based in reality. This is where the creditor needs to put trust in the debt collection expert. They are going to have a much better idea about whether to accept a deal or go legal.
Reduced Lump Sum or Legal Action: Which is better?
Personally, I always like to see a settlement being made, as aposed to legal action. I like to work with the debtor, to achieve a “win-win” scenario. I am always on the debtor’s side. Debt collectors often work on a commission basis, so we want to settle the matter, just as much as the debtor does.
Here are my 5 reasons why settlements are better than legal action:
1. Court Costs Are Expensive
The most obvious reason that you would consider taking a quick settlement instead of slugging it out in court is that, you will be saving yourself a good deal of money in court costs and legal fees.
There is no telling how long a debtor might be able to drag a case out, which means there is no telling how much those court costs might end up being. The risk of this unknown is a scary proposition for many creditors.
2. Time is Money
It is also worth noting that a smaller amount today is likely to be worth more to you financially than a larger amount would be at some undetermined time in the future. A bird in hand often is worth two in the bush in these situations.
Once again, there is no telling how long a court case might take. If you go to court, it could take a very long time to get your money back and this means more legal fees.
3. Bad Debt Risk
After all your expensive legal costs and securing judgment, you might just find you are back where you started anyway, with the debtor simply unable to pay, or filing for bankruptcy during that time, leaving you with a big pile of absolutely nothing.
If someone has fallen behind to the point where you are considering legal action, the odds are pretty good that they have a long list of other creditors who are going to want paid as well. Sooner or later, filing bankruptcy is going to look like a better option than struggling to pay off their debts.
4. Getting Personal
Many clients ring me, wanting to issue proceedings, just to “teach them a lesson” or to “send them a strong message”. This is breaking the number one rule of debt collection, which is “don’t make it personal”. Make a point to take stock of your emotional attachment to a particular situation and understand how that might impact you in the long run. Ask yourself if it is really economical to spend the money on the legals and if you have a reasonable chance of actually getting paid at the end of it all.
5. Leave it to the Experts
A debt collection professional negotiates payments all day every day. They are good at it and they know what they are doing. Often, they are working on a commission basis, so they are keen to get your money paid. Lawyers, on the other hand, may not specialise in debt recovery. They also get paid by the hour, so they are not incentivised to collect the money for you.
So there you have it. Choosing whether to pursue legal action or accept a settlement is one of the most difficult decisions you will make. However, going with a reputable debt collector or a legal firm that specialises in debt recovery is your first step.
ADC Legal Litigation Lawyers is a legal practice specialising in commercial advice and litigation, debt recovery and insurance claims recovery disputes. For more information, email us at email@adclegal.com.au or call 1300 799 820. Talk to us about your litigation or dispute concerns via Skype at adclegal.