Collection Options for Your Small Business

You thought you had been so careful, so very prudent. A customer, perhaps even a supplier, seemed so above-board, so solvent, so trustworthy.

But you've been left high and dry. Maybe a client owes you money for products or services or a supplier has happily grabbed your cash without delivering the goods.

In many instances, there are ways to pursue legal action to collect what's owed you on your own.

Small-claims Court

This can prove a viable option for resolving many disputes, particularly if the dollar amount involved is relatively modest. In most states, all you need to do is contact the small-claims court in your area and ask for the necessary paperwork to file a claims action. It's usually a rather simple procedure, and your court may provide information to help you get through the entire process. You file the paperwork, make certain the opposing party is served and the court sets a date to hear the case. Small claims offer several advantages. Filing fees are usually modest. The process is designed to move quickly. Decisions are usually handed down on the same day of the hearing. However, there are several nuances to bear in mind. For one thing, the amount you're able to file for varies from state to state. Further, the onus is still on you to make your case, so you have to present evidence, documentation and other forms of adequate proof. You're charged with knowledge of the law in small claims court. It's not like 'Judge Judy' or 'The People's Court' where they walk you through holding your hand.

Mediation
This type of dispute resolution can take a couple of forms. For instance, some small claims courts provide mediators. Rather than hearing a case, a judge may direct parties to work with a mediator to see if they can hammer out a settlement short of an actual court decision. In other cases, parties involved in a dispute may hire a mediator to help work out a suitable arrangement. Although mediation can also prove far less costly than formal legal action (fees are usually split) and much faster, it's not 100% effective. A mediator is the conduit to smoother communication, but it's up to the two sides involved to agree voluntarily to some sort of settlement.

Arbitration
A variant of mediation, arbitration lets businesses in a dispute work with an impartial arbitrator to hear both sides of the case. Like mediation, the process is faster and more cost-effective than conventional legal channels; indeed, your Better Business Bureau might provide volunteer arbitrators. However, unlike mediation, it's the arbitrator who hands down a decision, a final ruling that both sides are bound to honor. For more information about arbitration or to locate an arbitrator, check out the American Arbitration Association's Web site (www.adr.org).

Collection Agencies
As you likely already know, collection agencies are businesses that can be hired to pursue debt collection. However, many collection agencies will only take cases that offer a reasonably good chance of success. Moreover, they can be pricy. Some collection agencies will charge up to 50% of any amount they collect.

Credit Action
If you're unable to collect money owed to you, consider contacting your state's credit bureau. They'll provide you with the means necessary to make the bad debt part of your opponent's credit record. While that may seem like cold comfort now, it may offer valuable leverage years down the line when a bank or other lender refuses the offender a loan because of the bad debt. That may prompt your less-than-reliable customer or client to make good on what's owed you to clear up the credit report.

No matter which route you choose, you will need to know just how far to take things. For example, while many people may plead poverty outside the courtroom, pay close attention to what they say on the legal record. You'll get a clear indication of just how much money your opponent actually has and whether you should go after the full amount. If there's evidence of ample assets, pursue your fair share. However, if legal documentation shows little in the way of funds and an ex-customer offers you 50 cents on the dollar, it may be prudent to take what you can get.

It's also critical to know when to bring in an attorney. For instance, if the money in question is substantial—say, beyond the purview of your state's small-claims guidelines -- an attorney might be worth the extra expense. Similarly, pay attention to your opposite number's attitude, especially if there's serious money at stake: If you're dealing with someone who's obstinate or difficult, you may want to get an attorney involved.

But if relatively little money is owed, and your customer is belligerent, it's no disgrace to just let the whole matter slide: Give some thought to just writing the thing off. In business, it's often just as important to get the matter resolved and to get onto other things.

Have you had a bad experience and should have taken a different route to collect on money owed you? We would love to hear your story below.

Avoid Liabilities Upfront for Your Small Business

Though the legal side of your business may not necessarily involve making money or expanding your client or customer base, mistakes can certainly cost you money thus threatening even a profitable business if the errors are particularly costly. Here are some tips you may want to consider to protect your small business today and in the future.

Avoid liabilities at your business. 

Avoid slips and falls. More and more businesses are operated online these days, however, if you have a place of business, slips and falls or other accidents remain a risk. To avoid liability, consider slip and fall issues from the beginning.

Cut down legal fees on late payment issues. The post includes seven tips for getting those late payment issues resolved. Cash flow is the lifeblood of your company but having to take legal action to recover overdue invoices will only destroy your relationships with these customers and could cost your business even more. Try these tips first and see if you can get those debts paid first before taking things to the next level. 

Avoiding bad debtors in your small business. Another aspect of dealing with bad debts and overdue invoices is to have better credit policies to avoid bad risks before extending credit to them in the first place. Do you extend credit to customers in your business? If so, you may want to check out these tips for adopting a better policy in the future again avoiding possible costly legal action in the future.

Resources

Avoid legal problems while hiring. Clearly the most important aspect of the hiring process is to get the right person for the right job and, of course, this can be critical in a small business where a few key people can clearly make or break your company. But making mistakes during the hiring process can also lead to legal problems and you should be aware of these before you begin. Here are some thoughts to get you started.

Operations

Is someone in your business robbing you blind? Internal theft, whether large or small, can be another legal issue faced by many companies. It is a mistake to believe that it cannot happen to you. If you have employees or managers in your business, it’s important to make sure that you are taking steps to make sure internal theft does not occur. Here are some thoughts to consider.

Another way to save money is to be sure you take all legal deductions at tax time. While you certainly don’t need the potentially costly hassle of underpaying on your taxes, paying more than you are legally obligated to can also be a problem. Here are some tips you may wish to consider to be sure you are deducting a legal amount.

Trends

Does your business have a tech policy? With mobile devices increasingly not simply the way people stay connected in their leisure hours but how they conduct business as well, it may be time to consider the liability realities for you and your employees. Legal experts suggest having a policy is the best way of avoiding trouble with tech usage in the future.

Social Media

Creating a social media policy for your business is important in this day and age. It may seem to run contrary to the open and transparent characteristics espoused by social media gurus, but experts argue that your small business should have a thoroughly thought out social media policy, and one clearly understood by your employees, before hitting Facebook or Twitter on behalf of your brand.