An Attorney's Guide to the Collection of Bad Debts

I am an attorney who had been involved in the collection of bad debts for almost thirty years. Most attorneys are unfamiliar with this area of law. Much litigation involves actual disputes but many cases rely around the fact that one of the parties is having a money problem. Winning a lawsuit is meaningless if you cannot collect any of the money which is due and owing.

Normally, when a customer and supplier, lender and borrower or provider and client have a dispute about quality, amount or price, they will both seek to resolve the dispute if they intend to continue the relationship.

If the dispute can not be resolved then it involves either a serious difference of opinion of one of the parties is having financial difficulties. In my experience few litigated commercial matters do not involve credit sensitivity.

KINDS OF CASES WHICH ARE REALLY ABOUT BAD DEBTS

Many cases which seem like mundane commercial matters resolve around the fact that one of the parties is lacking funds. Most of these cases develop when one of the parties, either the buyer or the seller, is running out of funds. In desperation they will try and squeeze funds from their own customers even at the cost of losing and alienating their existing customers. It is like a drowning man who will grab on to anyone, and even pull them into the water, in a last effort to try and save himself. The following are a few examples:

A CONSIGNMENT BECOMES A SALE

You have an understanding with a supplier that you can always return goods you do not use. This had been along standing and successful arrangement so you do not hesitate to order goods you know you can return. Your supplier knows that there is a higher probability that you will use goods if they are readily available to you.

Suddenly, your supplier refuses to accept return of the goods and insists you pay for them. He informs you that the "return" policy is no longer in effect and that you should have known that. You tell him that you would never have ordered so many goods and he tells you that is your problem, he needs the money. You next receive a Summons and Complaint from his attorney.

A similar scenario involves the retail store which carries jewelry or pictures on consignment from a wholesaler. Basically, the wholesaler is using your store as his window on the consumer and you rely as the wholesaler as your bank to finance your inventory. It is a mutually beneficial relationship until the wholesaler demands payment for the goods you "bought" and starts suit to collect.

Another related example involves the receipt of goods you never ordered. You are in the habit of ordering certain goods from a supplier. You now find that you are receiving more than you ordered and that you are even receiving shipments of goods you never ordered.

In these cases, you must come to understand that your supplier or wholesaler is attempting to increase sales by forcing you to take his goods even if you never agreed to do so. This is the sign of a desperate person looking to obtain money from whatever source is available. He may argue with you on commercial grounds but you must be aware that he is simply desperate for money.