Suing Is No Easy Fix For Delinquent Accounts

“I’ll see you in court,” makes for great TV drama, but generally isn’t the best way to collect from a past-due advertiser. In reality, the better investment of time and resources is in best practices to ensure the company never needs to invoke that option.

That was my biggest takeaway from an article written by C. Robin Szabo, president of Szabo Associates, media collection professionals. It reviews what’s involved in taking a debtor to court and the tactics that can improve the odds of a successful outcome.

Szabo is a member of Media Financial Management Association’s — MFM’s — board of directors and champion of BCCA, the media industry’s credit association. He also serves on the editorial board of The Financial Manager (TFM) magazine. His article appears in the January-February issue of the publication.

Although a station or station group would never enter into a credit agreement knowing a client wasn’t going to pay off the debt, getting some money at some point is better than none. It’s always better to take a “belt-and-suspenders” approach, and be prepared to go to court in the event credit policies fail to protect against non-payment.

Included in Szabo’s article is his formula for a successful lawsuit. When the “belt” (credit policies and practices) fails, employing the guidance about lawsuits in his article offers the “suspenders” for controlling costs and ensuring success.

As he points out, “Prevailing in the lawsuit requires much more than simply having a valid claim. It also requires “understanding the litigation process; knowing the customer; providing complete and accurate documentation, and ensuring that personnel are responsive and available as needed.”

When these elements are in place, “the client and attorney can effectively manage this process, and in doing so, have a more predictable outcome and better cost control.”

The Litigation Process

Soliciting the court’s help in seeking payment from a creditor is a very time consuming process. The sequence of events outlined in the article includes:

• Developing and submitting the claim, including supporting documentation, which is forwarded to counsel in the debtor’s jurisdiction.

• After reviewing the documentation, the local attorney will make both a verbal and written demand for payment from the debtor.

• If the outreach is unsuccessful, the attorney will provide a recommendation to sue along with a request for estimated court costs.

• The process of taking the client to court begins with having the attorney draft a complaint and then file it with the court.

• The next step, which may take as much as 60 days to complete, will involve having a summons issued from the court and then served in hand by a court officer, typically the sheriff, to a registered agent or officer of the company.

• Once served, the debtor (now defendant) typically has 30 days to file a response with the court. If this doesn’t happen, the attorney will petition the court for a default judgment.

• If a response from the defendant is filed but the attorney considers it to be without merit, the attorney will make a motion for summary judgment, which would mean the case wouldn’t need to go to trial.

• If a summary judgment isn’t pursued or is unsuccessful, the trial stage begins with a discovery period, which can take from 90 days to more than a year.

• Following discovery, the litigation is scheduled, with time to trial being as few as 30 days or as much as two years.

• During the trial, each party presents evidence and witnesses for substantiation.

• The judge then renders an immediate decision or may take the matter under advisement, which could take another 90 days.

• The defendant may choose to file an appeal or cross-sue the plaintiff, making a counterclaim that seeks to recover litigation costs, which would add substantial time and cost to the litigation.

As this timeline illustrates, taking a non-paying customer to court can take months if not years.

Know The Customer

One of the best ways to control the time and expenses associated with going to court is to have knowledge concerning the customer that can be used by your attorney. Szabo gives these examples:

• In lieu of litigation, the customer may be amenable to creative solutions for addressing the debt, such as making incremental or reduced payments.
• The customer would want to avoid the negative publicity associated with a lawsuit.
• The reason for non-payment could be a cash shortfall in the customer’s business, which would make receiving payment problematic.
• The customer’s perspective and past behaviors can also help to anticipate the likelihood of a counterclaim.

“Each and every document that pertains to the transaction being litigated should be provided to the attorney at the very beginning of the process,” notes Szabo. “This should include the contract, invoices, statements, affidavits of performance, tear sheets, all correspondence with the customer, the sales representative’s notes and collection notes.”

Additional data that the attorney will need includes such information as:

• Is the debtor still in business?

• What is the size of the company?

• Has the debtor been sued before? If so, what was the outcome?

• Does the debtor currently have other lawsuits against it pending?

A credit and collections company or BCCA can provide most of this information. For example, BCCA’s database contains more than 40,000 credit reports on national and local advertisers, which include public records data such as liens, judgments, UCC filings and bankruptcy filings. In addition, BCCA’s Media Whys credit reports offer a credit score based on industry-specific aging combined with trade data from Experian or D+B.

Be Responsive And Available

Szabo goes on to remind readers that the litigation process will also be a significant time drain for staff. In addition to amassing the information the attorney will need for communication with the debtor and court filings, the discovery process will involve hours of research work, not to mention on-going communication with the attorney throughout the legal process.

Credit personnel with knowledge of the situation must be responsive and available when needed. It doesn’t matter that it’s month-end close or budget season. Staff meetings and vacations may have to be rescheduled. During a trial, it’s the plaintiff, not a third party, who must present the documentation. As Szabo warns, “If the resources are not available when needed, the strength of the documentation or testimony may be compromised.”

Caveat Emptor

Szabo’s article describes the “lawsuit formula” in considerably more detail. I encourage you to access the digital copy of the January-February 2017 issue of TFM to give it a read. The issue will be available to non-members on the MFM website until the end of the month; members always have access to the TFM archives.

I would also be remiss if I failed to urge you to meet with your company’s legal counsel as well as your credit and collection managers to discuss how well you are prepared in the event you need to take a non-paying customer to court.

Additionally, BCCA has resources to help companies access the strength of their current credit policies. Good policies can help limit situations where legal proceedings are required and strengthen the chance for success when a lawsuit is the best option.

“Caveat emptor” —let the buyer beware — is another great piece of advice. The more you know about the resources required to take a non-paying customer to court, the more you will be prepared to confirm that the belt portion of that belt-and-suspenders strategy is sufficient to ensure you are collecting timely payments from credit customers.

Mary M. Collins is president and CEO of the Media Financial Management Association and itsBCCA subsidiary, the media industry’s credit association. She can be reached at[email protected] and via the association’s LinkedIn, Twitter, or Facebook sites.