What to Do if a Company Owes You Money: Resolving Unsettled Debts

In a business relationship, there might be situations where a company owes you money, and the path to resolution may not always be clear. When faced with this challenge, it's crucial to approach the situation with a level head and a strategic plan.

Jan 17, 2024

What to Do if a Company Owes You Money

Let’s agree that no one enjoys navigating financial disputes, but being knowledgeable and having a well-thought-out approach can significantly improve your company’s chances of a successful resolution. In this article, we will delve into the intricacies of debt recovery, offering valuable tips and actions based on our team’s long years of experience. 

We will guide you through the steps to take when facing the delicate task of recovering money owed to you.

Key Takeaways:

If you don’t have time to read the whole article, here are the main points that you need to know:

  1. Initially, consider open communication with the debtor. 
  2. Send a formal written demand for payment.
  3. Go to small claims court for relatively modest amounts. 
  4. Reach out to a neutral third party to help reach an agreement. 
  5. Hire a professional debt collection agency. 
  6. Hire a solicitor

6 Options if Your Company is Owed Money

You have several options to pursue resolution. We will explain each step with advantages and disadvantages so you can decide which one is a better solution for your company’s case. Ultimately, the choice of action depends on the specific circumstances of the debt and the willingness of the parties involved to cooperate in finding a resolution.

Option 1: Negotiating and Coming to an Agreement With the Debtor

Negotiating and coming to an agreement with a debtor is a delicate process that requires effective communication and a strategic approach. Initially, it's essential to establish open lines of communication to understand the debtor's financial situation and reasons for non-payment. This enables you to empathize with their circumstances and find mutually beneficial solutions.

When negotiating on behalf of your company, it's crucial to:

  • remain calm and professional
  • focus on the facts and potential compromises. 
  • create a more positive atmosphere, increasing the likelihood of reaching a satisfactory agreement. 
  • stay flexible and explore various options, such as restructuring payment plans or settling for a partial payment, which can lead to a win-win situation. 
  • avoid misunderstandings and ensure both parties fulfil their obligations. 
  • implement clear documentation.

What are the advantages and risks if you negotiate on your own?

We advise trying this option first but not signing under any complex agreement that may need an expert’s revision and check. Just try to give the debtor an option to explain the situation and come up with a solution. But overall, the risks of negotiating the terms of any agreement or dispute of your company on your own may lead to greater losses.


Advantages

Risks

  • Cost savings - negotiating directly with a debtor eliminates the need to hire a third-party mediator or debt collection agency.
  • Lack of expertise - not understanding of financial and legal intricacies
  • Flexibility - allows for greater flexibility in finding mutually beneficial solutions.
  • Emotional involvement - personal emotions can cloud judgment, leading to impulsive decisions.
  • Learning experience 
  • Power imbalance - if the debtor possesses superior negotiation skills.
  • Preservation of business relationship
  • Legal pitfalls - unawareness of relevant laws and regulations.
  • Unenforceable agreements - agreements reached without legal expertise may lack enforceability.
  • Strain on relationships
  • Time-consuming

Option 2: Send a Letter of Demand

A Letter of Demand is a formal communication sent by a creditor to a debtor requesting payment for debts. It serves as a final notice before legal action may be taken. The tone of the letter is typically firm and professional, emphasizing the seriousness of the situation. 

This document must include:

  •  the amount owed
  • the reasons for the debt
  • a specified time frame
  • the debtor's name and contact information

The letter may also warn of potential legal consequences if the debt is not settled promptly. Sending a Letter of Demand is a common practice to prompt debtors into taking action and resolving financial obligations before more serious measures are pursued.

What are the advantages and risks of sending the Letter of Demand on your own?

Sending a Letter of Demand to a debtor can be a useful step in the debt collection process, but it's important to be aware of potential risks and considerations.


Advantages

Risks

  • The letter serves as documentation of your attempt to recover the debt.
  • Legal and Regulatory Compliance if you violate any laws when writing the letter
  • If you need to involve legal authorities, having a documented history of communication can be beneficial.
  • Including inaccurate information due to the lack of experience and legal or financial knowledge
  • Potential counterclaims for harassment

Option 3: Consider Going to Small Claims Court

Going to Small Claims Court for debt collection is a legal recourse available to businesses seeking to recover money owed to them. This process is typically chosen for smaller amounts of debt, as Small Claims Courts handle cases involving relatively modest sums. To initiate a claim, the creditor must file a complaint with the court, providing details of the debt, supporting documents, and evidence of attempts to resolve the matter outside of court.

Once the case is filed, both parties will receive a court date for a hearing. Small Claims Court proceedings are designed to be more informal than traditional court settings. During the hearing, both the creditor and debtor present their arguments, and the judge decides based on the evidence presented. If the judgment favours the creditor, the court may order the debtor to repay the debt, often with added interest and court fees.

Small Claims Court provides a quicker and more accessible avenue for resolving debt disputes, offering a streamlined, more cost-effective process for all parties involved.

What are the advantages and risks of going to Small Claims Court on your own?

Going to Small Claims Court on your own for the company’s debt collection poses several risks. Firstly, the legal process can be complex, and without proper legal expertise, you may struggle to navigate procedural requirements, potentially jeopardizing your case. Secondly, if the debtor disputes the claim, you'll need to present a compelling argument and provide evidence to support your case, which can be challenging without legal guidance.

Additionally, there's a risk of inadequate preparation, as you may not be familiar with the rules of evidence and courtroom procedures. This lack of familiarity could weaken your company’s position and reduce the likelihood of a successful outcome. Moreover, if you're dealing with a particularly contentious debtor, they may use legal tactics or counterclaims that could catch you off guard.

Furthermore, collecting a judgment after a successful case can be challenging. You may need to navigate additional legal processes to enforce the judgment, and without legal expertise, this can be a daunting task. Finally, the time and effort involved in representing your company in Small Claims Court may outweigh the benefits.


Advantages

Risks

  • Cost-effectiveness: going to Small Claims Court on your own typically doesn’t involve hiring a solicitor or a debt collector.
  • Going to small claims court without legal knowledge exposes you to the risk of inadequate understanding of the legal procedures and rules, potentially undermining your company’s case.
  • If you lack experience and expertise, you may struggle to compile and present the necessary documentation effectively.
  • Small claims court involves legal terminology and procedures that might be challenging.
  • Lack of expertise and skills might lead to unfavourable settlements. 
  • Enforcing a judgment can be complicated.
  • Risk of losing the case: a high risk of procedural errors or inadequate presentation of evidence, which could result in the court ruling against you.
  • Inability to recover legal fees.

Option 4: Using Mediation to Reach Agreement

Mediation serves as an effective and amicable approach to resolving debt collection disputes. Rather than resorting to adversarial legal proceedings, parties involved in debt collection can opt for mediation to reach a mutually beneficial agreement. A neutral third-party mediator facilitates open communication between the debtor and creditor, fostering a collaborative atmosphere conducive to finding common ground. 

What are the advantages and risks of using mediation?

While mediation is a widely utilised method for resolving disputes and reaching agreements, it has inherent risks. One primary concern is the potential for power imbalances between the parties involved. If one party is more assertive or has greater debt negotiating skills, they may dominate the mediation process, leading to an outcome that favours their interests over the other party's. Additionally, there's a risk that the mediator's neutrality could be compromised, either intentionally or unintentionally, impacting the fairness of the process.

Another significant risk is the lack of enforceability of mediated agreements. Unlike court judgments or arbitration awards, mediated agreements may not carry the same legal weight, making it challenging to compel parties to adhere to the terms. Finally, the success of mediation relies heavily on the willingness of the parties to collaborate and compromise; if one party is unwilling to negotiate, the entire process may be ineffective in achieving a mutually satisfactory resolution.


Advantages

Risks

  • Cost-effective compared to traditional legal processes.
  • Lack of legal protections: unlike formal legal processes, mediation may not offer the same level of legal protection and enforceability.
  • Quicker resolutions
  • Agreements reached in mediation might be more challenging to uphold in court.
  • Flexibility of the process 
  • There's a risk that conflicts may resurface in the future.
  • Mediators may not possess the necessary expertise to fully understand complex legal or technical aspects of certain disputes.
  • There's a risk that one party may withdraw, leaving the process unfinished.
  • Emotional factors can impede rational decision-making during mediation.
  • While confidentiality is a cornerstone of mediation, there's a risk that breaches may occur.

Option 5: Hiring a Debt Collection Agency

Hiring a debt collection agency can be a strategic decision for businesses facing challenges in recovering debts. These agencies specialize in debt recovery, employing skilled professionals well-versed in negotiation and legal compliance and implementing the above-mentioned options. By outsourcing debt collection, companies can focus on their core operations while leaving the arduous task of chasing overdue payments to experts.

Debt collection agencies often have advanced technology and resources, enabling them to efficiently track down debtors and employ various communication channels to encourage timely repayment. Moreover, these agencies are well-versed in the legal nuances of global debt collection, ensuring that all activities adhere to the relevant regulations.

While the cost of hiring a debt collection agency is a consideration, it is often outweighed by the potential financial benefits of recovering funds that may otherwise be lost. 

However, it's crucial for companies to carefully vet and choose a reputable debt collection agency, ensuring that their methods align with ethical standards and legal requirements. Clear communication and a well-defined agreement are essential to establishing a collaborative and effective partnership to pursue debt recovery.

What are the advantages and risks of hiring a debt collection agency?

Firstly, the company must be cautious not to hire an unprofessional agency that uses debt collection tactics that can tarnish the business's image, leading to customer dissatisfaction and a loss of trust.

Additionally, the cost of hiring a debt collection agency can be significant, so you need to be careful when and agree on the amount before starting.


Advantages

Risks

  • Expertise and experience: their experience and knowledge of debt collection laws and regulations ensure compliance and effectiveness.
  • Financial costs
  • Time and resource efficiency
  • Hiring an unprofessional team
  • Professional communication
  • Legal protection
  • Higher success rates in recovering debts compared to in-house efforts
  • Preservation of business relationships
  • Customised strategies
  • Higher return on investment (ROI)
  • Document drafting
  • Risk management
  • Time and stress management

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Option 6: Hire a Solicitor

A solicitor specialized in debt collection possesses the legal expertise necessary to navigate the complexities of debt recovery laws and procedures. Their involvement can enhance the likelihood of a successful resolution by leveraging their knowledge of laws available for debt collection.

Solicitors can provide valuable advice on the most effective and ethical strategies to recover debts while adhering to legal frameworks. Engaging a solicitor sends a clear signal to debtors about the seriousness of the matter, often prompting swifter responses and cooperation.

In summary, hiring a solicitor for debt collection not only enhances the prospects of successful recovery but also provides peace of mind through a legally sound and strategic approach.

What are the advantages and risks of hiring a solicitor?

Hiring a solicitor for debt collection can be a double-edged sword, as it comes with its own set of risks. Firstly, the costs associated with legal representation can be substantial, potentially outweighing the amount of debt being pursued. Legal proceedings can also be time-consuming, dragging out the debt recovery process and adding further expenses.

 It's crucial for businesses to carefully weigh the potential benefits against these risks when deciding to hire a solicitor for debt collection.


Advantages

Risks

  • Legal expertise
  • Solicitors typically charge fees for their services, and these costs can escalate quickly depending on the complexity and duration of the legal matter.
  • Document drafting
  • Hiring a solicitor who lacks sufficient expertise in the relevant area of law may lead to subpar legal representation.
  • Representation in court
  • Relying solely on one solicitor can be risky.
  • Confidentiality
  • Courtroom procedures

FAQ

If a Company Owes You Money What Can You Do Legally?

Legal action can be pursued through small claims court for smaller amounts or through a civil lawsuit for larger sums. In extreme cases, you may be able to seek assistance from debt collection agencies.

What Do You Do if a Company Owes You Money?

If a company owes you money, start by reaching out to them directly to inquire about the status of the company’s payment. If your attempts to resolve the issue directly are unsuccessful, consider sending a formal written demand letter outlining the amount owed, the reason for the payment, and a reasonable deadline for resolution. 

If the company still does not respond or refuses to pay, you may need to escalate the matter by seeking legal advice or pursuing alternative dispute resolution methods, such as mediation or small claims court, depending on the amount owed.

What Happens When a Company Goes Out of Business and Owes You Money?

In many cases, the company's assets are liquidated to pay off its debts, and creditors are prioritised based on the type of debt and legal agreements. Secured creditors, such as banks with collateral, are typically paid first, while unsecured creditors, including individuals owed money, may receive a lower priority.

If the company lacks sufficient assets to cover all debts, individuals may only receive a fraction of what they are owed or, in some cases, nothing at all. The legal process for debt resolution varies by jurisdiction, and individuals may need to consult with legal professionals for guidance on how to proceed.

Contact Payfor to Start Your Global Debt Recovery


Giles Goodman - Payfor CEOAuthor: Giles Goodman, Founder CEO of Payfor Limited
Drawing from his solid experience in commercial debt collection, Giles
offers invaluable expertise in solving claims owed between companies worldwide. Through his writing,
Giles shares insights tailored to business owners, leveraging his wealth of experience to provide practical
guidance and support.

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Disclaimer:

This blog post is intended for informational purposes only and should not be construed as legal advice. The information provided in this post is based on general principles and may not apply to specific legal situations. Laws and regulations vary by jurisdiction and can change over time. Readers are advised to seek professional legal counsel before making any decisions based on the information provided in this blog post. Payfor Ltd is not a law firm and does not provide legal services. The company disclaims any liability for actions taken based on the contents of this blog post.

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