Debt-Where is Thy Sting?
There are four rules to being a successful debtor:
1. Admit nothing, especially not that you owe any money or that you are completely satisfied with the goods or services.
2. If there is anything slightly wrong with the product or services, tell the supplier in writing.
3. Try not to sign personal guarantees.
4. Do business in a company or entity that is not worth suing.
At some stage during your evasive activity, the creditor will get fed up and instruct a lawyer. Should you surrender immediately? Well, maybe not.
There are two types of lawyers’ letters.
a) Pay or we shall commence action. This is called a “letter before action”. It is very precise and states that the money must be received within say, seven days of the date of the letter. The reason for this precision is not to help you pay more efficiently or make the threat more menacing, it is simply to ensure that once the deadline expires the lawyer can commence action and the costs of the proceedings will be ordered against you. A “letter before action” is like the scene in Dirty Harry where Clint Eastwood says, “Make my day”. The choice is blindingly simple, pay up or get sued.
b) Pay or we shall “seek our client’s instructions” or “advise our client that action should be commenced” or my own personal favourite, “take such action as we deem necessary without further notice to you”. This is often a shot across the bows.
Assuming that you do not want to make payment in full, there are five possible responses to a lawyer’s letter:
1. Do nothing and hope it goes away.
Letter a) forget it.
Letter b) this may work.
2. Offer to pay in instalments.
Letter a) maybe.
Letter b) probably acceptable.
3. Say that you will defend any proceedings commenced. This means that you have taken it out of the “cheap and easy” debt collection class and put it into the expensive “defended action” category. If you have credible reasons this may make the creditor think twice before commencing action, especially if combined with 4.
4. Offer to pay part of the money in “full and final settlement”. This is called “negotiating a settlement”.
5. The best response, and the one most likely to stop your creditors in their tracks, is to convince them that you are broke and that suing you is throwing good money after bad. This can be difficult to do as they will think that you are having them on; claims of fatal diseases, lost jobs, deceased relatives (or pets) tend to fall on deaf ears. A good tactic is the “open kimono” approach; make a list of all your assets and debts and offer to pay a few dollars a month to each debtor. On the positive side, the worse your financial position is the more successful this tactic will be.
Now that you know the rules to be a successful debtor you will understand that as a creditor you must:
1. Get the debtor to admit preferably in writing that the money is owing. If it is only a verbal statement then you should confirm it in writing.
2. Know legally who owes you the money.
3. Get guarantees and do credit checks.
You are now fully equipped to be in small business. Best of luck.