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When collecting unpaid accounts requires litigation

On Behalf of | Jan 26, 2024 | Business & Commercial Litigation

If you own a small business, you are aware that having unpaid accounts is an inevitable challenge. While many situations are resolved through direct communication or negotiation, there are instances when collecting on overdue accounts receivable necessitates litigation.

Understanding when and why litigation may become a necessary approach is important for small business owners who need to safeguard their companies’ interests. Again, litigation isn’t always the solution, but it may become necessary under certain circumstances.

Litigation: When and why?

Any decision to litigate should be grounded in a careful evaluation of the situation at hand. For example, you’ll want to consider the amount owed. If the outstanding debt is substantial and represents a significant portion of your business’s revenue, legal action might be the most effective way to recoup these necessary funds. In cases where the amount is smaller, alternative dispute resolution methods like mediation might be more cost-effective.

You’ll also need to weigh the debtor’s response. If repeated attempts to contact the debtor and negotiate a payment plan have failed, or if the debtor has outright refused to pay, litigation can be a necessary step. This is particularly true if the debtor has a history of non-payment or fraudulent behavior. In such cases, legal action sends a clear message about the seriousness of the situation and your commitment to protecting your business’s interests.

The impact of unpaid accounts on your business’s cash flow and operations may also play a role in deciding to litigate. If debts are hindering your ability to pay vendors, meet payroll obligations or invest in growth opportunities, recovering overdue funds may become a matter of business sustainability. Litigation in this context is not just about the unpaid debt; it’s about safeguarding the future of your business.

Deciding to litigate over unpaid accounts is a significant decision for any small business. While litigation can be an effective means of debt recovery, it’s essential to approach this path thoughtfully and strategically, ensuring it aligns with your business’s overall goals and values. Seeking personalized feedback about your situation may be a good way to make an informed decision either way.