Steps to try before resorting to business litigation

You have a business relationship with someone and you are now owed money. What can you do to get what is owed to you, short of filing a lawsuit? Litigation is expensive and time-consuming. Is there a better way?

As a starting point, you may want to review how you got to this place with this person or business. Do you have a written agreement or any other documentation upon which you can rely to set forth your legal rights? If you do, here is what to look for: Are there terms for payment (for example, within 30 days of receipt of the goods or services)? Does your documentation (perhaps an invoice) say what happens if payment is late, such as interest accruing on the unpaid balance? Do you have an agreement that states whether you have to mediate or arbitrate disputes or provide for attorneys’ fees?

Having a properly negotiated and written agreement will reduce the likelihood that you will have to chase after someone for money. Assuming you are getting to the point of having to chase, you should evaluate whether the amount you are owed is going to be worth the effort to take action.

That evaluation should include how much it would cost to recover the money you are owed. This cost is the financial burden of taking legal action as well as your time and energy. Additionally, you should evaluate whether the other party has the ability to pay any judgment you can recover. If he or she isn’t paying you today, will the resources be available to pay you a year from now?

Once you have decided to pursue the amount owed to you, there are still many actions you can take before filing a lawsuit. You may be able to simply reach out and try to work out a way to maintain the relationship and still get paid. For example, you may agree to take a reduced amount or agree to get paid over time.

If maintaining a relationship is less important, you may send a demand letter, or hire a lawyer to send one on your behalf. Typically, a demand letter would state something like: “You owe me money. If you do not pay me within a set period of time, I will take legal action against you.”

Assuming those actions don’t work and you choose to sue, you should consider what that will get you. Once you get through the court processes (and have likely spent thousands of dollars) and you have a judgment, what do you get? A piece of paper. There may still be things you have to do before you recover a single dime. You can record the judgment; you can garnish bank accounts (with some limitations); and/or you can attach other property. However, all of those options will cost you more money.

As a litigator, I tell my clients that the decision to sue should be a business one and not based on emotion or passion. The costs will almost always outweigh the benefits. The better move may be to document your relationship differently and nurture that relationship to ensure you do not end up on the losing side of it.

Aviva Y. Gordon is the founder of Gordon Law.