collection agency or lawsuit?
November 30, 2015 6:32 PM   Subscribe

Burned by client. Go collection agency or lawsuit?

A client burned my company for a significant amount of money (over $50k). A lawyer is about $2000 with the hope that eventually, if/when client is forced to sell the inventory, I'll collect something (she has about $1M stuck in a warehouse – she can't pay them either). Lawyer takes an additional 35% of whatever is collected. The product is a line of beauty products – branded for specific colleges – so not sure how sellable it would be.

My partner wants to try the collections agency route. No up front fee. They get ~25% of any collected funds. I've heard stories about how aggressive these companies – which is fine – but not sure how effective they are at actually collecting – esp at this level.

We had worked with this client with no issues for 1.5 years before this happened. My feeling is she simply mis managed the business and really does not have money.

So, try the collection agency route or go straight to a lawsuit?
posted by pmaxwell to Work & Money (4 answers total)
 
You should talk with your insurance agent before you do anything else, because a) this might be covered and if so b) they get to make the call.
posted by SMPA at 6:40 PM on November 30, 2015 [3 favorites]


After you win a lawsuit, then you have to collect. You might save money by skipping straight to that step.
posted by salvia at 8:00 PM on November 30, 2015


From what you'be described I'd expect a lawsuit to lead to bankruptcy, which would put you in line with the other creditors, who may be larger and more senior. So I'd go collections first, and hope you get some money before someone else pushes them into bankruptcy.
posted by alms at 8:37 PM on November 30, 2015 [1 favorite]


Did the sales contract allow you to keep a security interest in the goods until paid? If so (and if you haven't done so already), file the UCC 1 form with the UCC registry of the state where the goods are. If not, at, least run a UCC search of the debtor's name across the states where the debtor is doing business. This will let you know where you are in relation to other creditors with security interests in the goods.

Do the same for their real property assets as well, in the county where they have real property. This will give you a good idea as to whether they're "judgment proof."

Big second on checking with your insurer.

I'd also recommend that if your company is doing such large transactions without payment up front, it may want to consider
processing payments through letters of credit. It's akin to an escrow system, where you present proof of shipment to a bank and the bank releases payment to you. Risk of loss in transit borne by buyer.
posted by holterbarbour at 9:39 PM on November 30, 2015 [2 favorites]


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