California Small Business Guide to Getting Paid
7 Tips to Collect Accounts Receivables for Goods or Services Valued Over $10k and Less than $25k.
Once a borrower or customer owes you over $10k, you are now in excess of the small claims court jurisdiction. That means that you have a choice:
• Go after the debtor for the maximum amount of $10k on your own; or
• Pursue them in a civil claim in the Superior Court, potentially represented by counsel.
Claims in this dollar range can be litigated in the “Limited Jurisdiction” and you can have an attorney represent you in a civil action at this level whereas in small claims court, you must represent yourself. Additionally, in civil cases, both parties have the right of appeal whereas in a small claims suit, only the defendant can appeal.
A key difference is also that in a civil action, parties have the right to conduct discovery. That means that in some claims where you need documents or information from the other side, you have an opportunity to seek it out before your trial.
In this “limited jurisdiction” dollar range, discovery is limited and there are special discovery forms that can be used for economic discovery in this type of claim.
More importantly, if you have a written contract with an attorney fee provision, it makes sense to seek counsel to represent you and stay out of small claims court.
You can find other technical and administrative advice on the court’s self-help centers but here are my suggestions on collecting what you are owed.
1. Start with a demand letter.
2. Find and Properly Identify Your Defendant.
3. Assess the Collectability of Your Defendant.
4. Prepare Your Complaint.
5. Generate a Discovery Plan.
6. Consider the Use of Experts.
7. Evaluate Settlement Opportunities.
1. Start with a demand letter. Before filing suit, consider sending a demand letter to the debtor. This will also assist you in the preparation of your own case on many levels. It means you will assess how to locate the defendant, that you have calculated what you are owed down to the penny and you are aware of your collection avenues. Additionally, you may be entitled to pre-judgment interest.
2. Find and Properly Identify Your Defendant. If you did prepare a demand letter, than you have already addressed some important pre-filing considerations, such as where to locate the debtor and how much you are really owed. Also, if the defendant is a corporation, it will be important to know whether they are a California entity and what type, since that could alter your service of process requirements and/or collectability.
3. Assess the Collectability of Your Defendant. The next major consideration is the collectability of the debtor. Depending on your prior relationship with the debtor, you may have significant information about their assets and collectability. A special consideration may be whether or not the borrower is insolvent and the potential bankruptcy filing of the defendant. If that is the case, you should consider engaging bankruptcy counsel to give you a rundown of the risks and process that creditors will go through to pursue such a debtor.
When interviewing counsel, you would be well served to request a litigation budget from your attorney. Often, cases settle before going to trial and that means that you are not likely to recover your attorney’s fees (or perhaps only a portion) because people are often willing to compromise their claim in order to receive a speedier resolution. Avoid the potential of a pyrrhic victory, when your litigation spending rapidly outstrips what you could recover from the defendant. The litigation budget can assist you in determining what stages you would be most willing to discount your claim in order to settle and net more.
4. Prepare your complaint. The Judicial Council provides a number of standardized forms. In some cases, they can even be utilized to file a Complaint against the defendant. Otherwise, it is best to engage counsel for drafting purposes as there are a number of technical pleading requirements.
5. Generate a Discovery Plan. To prove your case, you need evidence. This could be receipts, invoices, bookkeeping records and of course, any written agreement(s) you have with the defendant. Much like the old days of letters exchanged by snail mail, usually you only have one side of the story. That means the use of written discovery can be used to obtain evidence from the other side to fill in the gaps in your case.
Also, your evidence must be authenticated. This means that you need a credible witness with first hand knowledge of the evidence you intend to present.
6. Consider the Use of Experts. Presenting evidence in a persuasive and clear manner is what an expert can do for you. For example, if you have many pages of accounting records to present, often it can be tedious for the factfinder to listen to. However, an expert is in a position to summarize records, present an opinion and support that opinion with the evidence that she or he reviewed.
7. Evaluate Settlement Opportunities. At the first case management conference, your judge will ask you if you are going to a form of alternative dispute resolution. That means that prior to the conference, you should have already considered and discussed the possibility of mediation with a neutral facilitator. The mediator is often a retired judge or very seasoned attorney. If you do not go to mediation before trial, the court will often set you for a mandatory settlement conference which is very close in time to the trial. That means that between the filing the complaint and the trial itself is a long stretch of time where settlement could occur at any point. In a case where the dollar amount owed is certain, there are pre-trial motions that may make sense to file and spur the other side to consider their odds of settling now versus after losing the motion.
Collection requires fortitude and persistence. Expects delays and stall tactics from the defendant, who obviously avoids paying the more roadbloacks he, she or it puts up to your collection efforts. Plaintiffs can make a business decision to take a discount if collectability is very uncertain.