Choosing the course of the claim
Depending on the amount of the debt, the documents to prove the debt and the nature of the sale to the customer, a decision is made on the type of legal proceedings to be filed. The organization must receive instructions in advance from the organization’s legal advisor and establish a set of rules that will regulate the claims procedures against the organization’s debtor customers. The types of lawsuits available to creditors vary depending on the country you are in.
Examples:
Legal proceedings available to creditors in the US
Legal proceedings available to creditors in the UK
Preparation of the proceedings
The lawyer will prepare the legal proceedings in cooperation with the manager of the legal collection department or the manager of credit risk and collection in the organization according to the circumstances and the amount of the claim.
Filing a lawsuit in court
If, after the mandatory period, the customer has not paid the balance of his debt, the law firm will file a legal claim in one of the types of proceedings pre-defined by the organization.
Adding amounts to be collected for a customer who is already in legal treatment
There are cases where the client is retained during legal proceedings (due to a failure in the collection process), and invoices are added after the client is transferred to legal proceedings. In these cases, the additional invoices will be submitted for legal treatment separately, and the lawyer must claim them as well. If the lawyer filed a claim even before receiving the invoices, the addition of the new invoices to another claim will be considered according to the overall merit. If the client comes to the lawyer’s office or the organization’s offices to pay, these debts will be attached to the claim and collected accordingly. That said, sometimes, the extra effort and costs to perform the adjustments might lead to the decision to write off the additional debts.
Locating and delivering the statement of claim
After filing the lawsuit, the lawsuit must be delivered to the debtor according to legal requirements.
Dealing with a defence letter
The debtor can file a statement of defence in accordance with the legal procedure. If the statement of defence is approved by the court, it will be forwarded to the attorney and submitted for reference to the organization. The organization must respond to the statement of defence in accordance with the schedule established by law. The lack of response on time can damage the organization’s chances to recover the debt.
This process needs to be prepared and agreed on in advance. Sometimes, the delay to respond could be as short as 14 days, and this is an extremely short delay for an organization, especially if the information needs to go back and forth between the organization and the lawyer’s firm. A procedure needs to include:
- Where will the statement of defence be received?
- Who will be responsible to scan and upload them to the systems?
- Who needs to prepare the response, and within which SLA (response time)?
- Who needs to approve the organization’s response?
- Who is in charge of filing the response?
- Who is responsible for ensuring that the response is provided within the legal time frame?
Conducting the trial against the debtor
The trial against the debtor will be based on the statement of defence or counterclaim, which the debtor submitted in response to the statement of claim. The organization will prepare a list of employees/managers who will be allowed to appear on its behalf in court. In each trial, the organization’s legal advisor, in cooperation with the external lawyer dealing with the case, will guide the employees/and managers who will appear on behalf of the organization in court.
Arrangements, compromises, and discounts
The lawyer will work on the collection of all the elements of the client’s debt since these represent the true balance of the client’s obligation towards the organization. Only in special cases, with permission and clear procedures, can the lawyer grant a discount to the client and/or reach a compromise, including a payment arrangement. The organization will provide the procedures to the lawyer’s office and follow their implementation. Every month, a match will be made between the organization’s data and the data of the lawyer’s office. This is to verify that the discounts applied by the lawyer are within the boundaries approved by the organization. A procedure for special arrangements must also be set in place. For instance, if the agreed discount cap is 10% and the lawyer assumes that a case should be closed with a 15% discount due to specific circumstances.
Passive customers
In small debt collections, the majority of the cases are not defended by the debtors. This can reach, depending on the country and sector, up to 90% of the claims that are not defended. In these cases, the organisation needs to prepare an interim process to contact the customer once the decision is obtained and try to trigger a quick settlement. In most countries, a claim settled within a short period of time can lead to the cancellation of the decision by the creditor. This is important for the debtor because his credit file will not show the decision. Sometimes, an emphatic action at this point results in a quick settlement once the debtor is updated on the advantages of a quick resolution.
Transferring the case to mediation or arbitration
At any stage, the parties can, with the consent of the court, resort to a mediation or arbitration procedure. This is often in the interest of the creditor. The procedure is cheaper, shorter and, in a debt case, the outcome is predictable and generally favouring the creditor (unless there is a serious failure in the collection process).
NEXT: Phase C – Collections following a legal proceeding against a debtor