Our attorneys know that your small business relies on repayment of invoices to operate effectively. When vendors, customers, and other parties fail to pay invoices in a timely manner, your business suffers. Our commercial collections lawyers can take steps to recover invoiced costs and, if necessary, to initiate debt litigation against the non payer.
New Jersey statute of limitations for debts
Each state has a statute of limitations when it comes to debt. In New Jersey, that statute of limitations is six years. In other words, you have six years from the date at which the debt was incurred to take legal action against the company or individual who did not pay you for a product or a service. You should have this number in the back of your mind as you attempt to collect the debt.
Bankruptcy for businesses
While businesses can apply for bankruptcy, they cannot, like individuals or couples, simply have their debts discharged and start over. Chapter 7 bankruptcy is available for businesses but it can only be executed upon the dissolution of the business. Any assets that the business has are liquidated to repay creditors and the business is entirely dissolved.
Chapter 11, which many businesses do file, requires that they pay at least most of their debts over the course of an extended period of time.
Methods you can take before initiating lawsuits
Before you begin threatening litigation, you want to make sure that your customer actually received the invoice. You can do this by simply asking them. Make sure that the copy you sent has an amount on it. Also make sure it was sent to the proper address.
Give them a call. Oftentimes, temper flares can be avoided by simply reaching out to the customer. For example, the:
- customer may be out of town,
- invoice may have slipped through the cracks, or
- invoice could have been sent to their spam folder accidentally.
Before berating them, make sure that they know that the invoice is due and were given the information they require to pay it.
If that doesn’t work, or the company has the invoice with the correct information on it, many have found that the best approach to collecting a debt is to inform the client how it personally affects you and your business. Instead of emailing nasty letters or making threats, simply state that you are disappointed that you have to go to them hat-in-hand for money that you are owed. Talk about the business relationship that you have had and the quality of work that you’ve done. This can be much more effective in the short term than threatening to sue from the outset.
Methods you can take other than litigation to get paid
Since the above-listed methods are various effective ways of simply checking in with the client, you should also be aware that there are more aggressive stances that you can take other than initiating a lawsuit for the money. Two such methods involve factoring and contacting the Better Business Bureau in your area.
When you contact the BBB, you will be filing an official complaint against the company stating that they have not paid you for services or products rendered. This is a public complaint that can be accessed by creditors. It will hurt their ability to apply for credit lines. It can often be effective.
Smaller businesses can use invoice factoring to settle debts. In essence, a third party company purchases a debt at some percentage of the principal. From there, the company assumes the risk of collecting the debt with interest. You can also have the debt financed through a similar company. In other words, they front you the money for the invoice, but now, you’re the debtor. If you want to factor a client, you should act within the first 90 days of the date of the debt.
You can also offer to settle for somewhere between what the factorer will offer and the total balance on the account. This is not ideal because, essentially, you’re rewarding a deadbeat client for nonpayment. You can, however, offer a repayment plan over the span of a few months if it is in your best interests to do so.
Unpaid commercial debt litigation
In the event that you have an attorney initiate a lawsuit against the client, you will need to understand how that works. First off, if you win a judgment against the client, you will have certain legal rights at your disposal. These are both powerful and unpleasant for the client. If the client has any real estate holdings, you will be able to put a lien on that property. In addition, the court may allow you to initiate a bank levy in the amount of your unpaid debt. What is the process for doing this?
Draft a formal demand letter
You will first draft a formal demand letter. The letter should include the client’s name, the date of the debt, and your own business’s name or DBA. Identify how the customer is in default, as well as the amount owed. You will then advise that failure to repay will result in legal action.
Serve the complaint in the proper jurisdiction
If the customer fails to respond to your demand letter, you will serve the complaint to the court in the proper jurisdiction. There are ways to seek relief early on in the process. You may be able to seek a writ of attachment or a writ of possession to place a lien on some of the debtor company’s property. During the discovery process, you will be able to identify the debtor company’s assets.
Getting a judgment against the debtor company
Once you have obtained a judgment against the company, you have serious leverage over them. As alluded to earlier, you can put a judgment lien on some of their property or levy their company accounts. Companies, unlike individuals, have to deal with writs of execution. A writ of execution entitles you, as the judgment creditor, to seize the judgment debtor’s equipment or garnish their cash assets.
While these are all great ways to leverage a debtor company to pay their debts, New Jersey makes it difficult to collect attorneys fees in debt litigation. They can be awarded, but you must first have a clause in the contract that entitles you to collect attorneys fees in the case that litigation is required. The court also caps the amount of attorneys fees to somewhere around 5% of the interest whereas our contingency fee can be higher. In the end, a cost-benefit analysis will determine whether litigation is the right choice for you.
Contact a debt collections attorney for help collecting on unpaid invoices
The recent trend has been toward getting collections attorneys involved earlier in the process. Snellings Law LLC can make recommendations on the best way to play your hand when collecting a debt. In situations where a lawsuit is worth the cost, Snellings Law can help you file the paperwork and sue the delinquent debtor. Contact us today to learn more.
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