When Collecting Debt, Make Good On A Threat

A quick example.  Our law firm represents a small business in Irvine, California.  Several of the company’s customers had not paid invoices, ranging in amount from approx. $200 – $20,000.  Prior to our firm’s involvement, the company’s accounting person had threatened to sue the delinquent customers, but no lawsuits were ever filed.  In California, and particularly in Orange County, California, it is quick and inexpensive to file a lawsuit to collect from a delinquent customer.

To obtain payment as quickly as possible, it is crucial to maintain credibility.  In other words, if you threaten to do something to collect, do it.

As soon as our firm was hired, we took the following approach.  We first identified all of the customers in Orange County, California and sent them a letter explaining the following:  (1) if the customer contacts us to arrange a payment plan, we are confident that a resolution will be reached, (2) if the customer does not contact us within one week, we would send a final letter within 10 days, (3) if no response is received to the final letter, we will file a collection lawsuit in Orange County Superior Court within 10 days, and (4) if we file a collection lawsuit, we will prosecute it until we obtain a judgment, then use the collection judgment to conduct bank levies, record real property liens, etc.

Our initial letters produced a good response.  We settled with several of the debtors.  But many other customers did not respond.  As promised, we then sent them the final demand letter.  When certain customers still did not respond, we made good on our threat by quickly filing collection lawsuits.  When the Orange County customers were served with the lawsuits, they immediately took matters much more seriously.  They knew that we would do as we claimed, and we promised to obtain judgments and take aggressive steps to collect, steps which may disrupt their businesses.  At that point we received many more calls and collected sizable amounts.

It is better to convey no threat at all than to convey a threat and not follow through.  In other words, if you want to collect, earn credibility by doing what you say you will do.