Collecting debt is uncomfortable reality for small businesses and individuals. Small business owners can have customers who are several months past due on a bill. Sometimes individuals loan money to others and have trouble securing repayment. Either way, it’s your money and you want to be repaid. There are steps to take before enlisting an attorney’s help.
Rustin Smith, an associate attorney with Stewart, Melvin, & Frost, frequently assists businesses in their debt-collection efforts. Rustin will help us understand the initial steps to take to secure repayment of a debt and what do those first efforts don’t work.
Question: If you are an individual or small business owner who is trying to collect money owed you, what’s the first thing you should do?
Rustin: First, you have to decide that you are at the point where the debtor is not going to pay unless you start the collection process. That’s up to each person to determine.
Depending on your relationship with the debtor, a good first step may be to contact the individual informally and remind them of what they promised to do. Whether it is repaying a loan or paying for services or goods provided, remind them in a polite way what they owe. One of three things may happen:
•They’ll pay you immediately. This, of course, is the best case scenario. Sometimes an honest conversation is all it takes.
•They’ll recommit to pay you at some point, even if they don’t know when they will be able to do so. In this case, get them to sign something in writing stating they agree they owe you and when and how they intend to pay. Even an email or text message from them is better than nothing. Just make sure you can document in writing their commitment that they owe you a specific amount.
•A more common response is they will give an excuse as to why they shouldn’t have to pay. They may say your loan was a gift to them or a business venture where you risked not being repaid. However, the most common response is they will say you did something to violate your agreement or understanding, or you caused them some expense that should either give them a credit on the debt or relieve the debt entirely. If this happens, don’t waste time confronting them. Just tell them you are going to proceed to collect the debt and then do so.
Question: What do you do if they don’t make an effort to pay after you have made the initial contact?
Rustin: It’s best to put formal requests for payment in writing.
•The letters should include the amount of the original debt, the amount of late fees (if you have a written contract allowing for late fees), the amount of interest that has accrued (in Georgia, the default rate is 7% but another rate may be allowed by contract or statute), the date of the last payment you received, if any, and the total current balance.
•Tell them how, when, and where you expect them to send payment and if you will accept several payments over time instead of payment in full.
•Give the debtor a due date to make payment in full or make the first requested payment. It’s typically best to choose a date that’s 10 to 20 days from the date the debtor will receive the letter, so that it’s not too far away but not so close that the debtor may not have time to set aside other matters to arrange for payment. For certain debts in Georgia, you are required to give the debtor at least 10 days to preserve your chance to recover attorney fees if you end up having to sue them.
• Make a paper trail by sending past due notices at least every 30, 60, and 90 days. Keep copies of these letters in case you end up in court. It’s usually best to send the letters by both certified and regular mail so it’s easier to tell if someone has moved or is just ignoring you.
Question: In some situations, a person may have fallen on hard times and simply can’t pay you back fully but offers partial payment. How do you handle that situation?
Rustin: If your debtor has fallen on hard times – or you don’t believe you will recoup all of your debt – or if you decide that the debt amount is too small for the hassle of continuing to try to collect, it’s time to consider a Debt Settlement Agreement.
With a Debt Settlement Agreement, you can amend the original agreement, changing the amount owed or the time frame for payments.
Sometimes, avoiding protracted court room battles or the worry about losing a friend over a debt can spur people to using these agreements. You’ll have to consider whether it is right for your particular case, but it’s good to know that the option is available.
Question: The other extreme is you know the person can pay but is simply refusing. Is it time to contact an attorney to help with the debt collection?
Rustin: You certainly hope it does not come to that but if your attempts to collect fail then it is time to consult an attorney.
Your attorney can write a letter to the debtor. The appearance of a demand letter on an attorney’s letterhead can show your debtor you are serious and convince the debtor to pay promptly.
If the collection process moves into the court system, an attorney can be a valuable asset for navigating you through the process.
Every loan, every debt, and every situation is different. An attorney can advise you how best to protect your rights and make the most cost-effective decisions.