In business collections, pre-litigation settlements can save you time and money. Yet without a lawsuit pending, they can be harder to enforce. This article will discuss the pros and cons of pre-litigation settlements and how to manage the risk of nonpayment.
Risks of Pre-Litigation Settlements In Collections
Compared to a litigation settlement, a pre-litigation settlement is generally quicker, less expensive and less adversarial. And as long as it provides for prompt payment, there isn’t a lot of risk — meaning that if the customer doesn’t pay and you need to file suit, at least you haven’t lost much time.
But a promise of future payment is different. With a lawsuit pending, you could file a written agreement, called a Stipulation of Settlement, which entitles you to judgment if the customer doesn’t pay. Without a lawsuit, you would have to file one and start from the beginning. This delay not only prolongs your remedies, it also helps other creditors chasing the same assets. Â
Protecting Your Pre-Litigation Settlement
The solution is to file an action followed by an immediate Stipulation of Settlement. This requires you to prepare the Stipulation before you file, and to explain to the customer why you’re doing it — say it’s not adversarial, it’s just for your protection.  Doing so avoids the time and expense of contested litigation, while giving the Court jurisdiction to enter judgment in the event of a breach.Â
For an immediate payoff, you don’t need to file suit. But for a promise of future payment, filing suit with a properly-drafted Stipulation will offer the protection you need without the time and expense of contested litigation.
For more information on B2B collections, or if you’d like to discuss a specific collection issue, call me at 856-667-1669 or contact me here.
This material is for informational purposes only and should not be construed as legal advice. No person should rely on this information without seeking the advice of an attorney.