In a collections lawsuit, settlement reduces the risk, expense, and uncertainty of both litigation and trying to collect a judgment. Every settlement will focus on the amount accepted and the time allowed for payment. This article will discuss how to balance these issues when structuring a settlement.
Balancing Risk And Reward When Settling Collections
When a customer owes you money, settlement can involve either an immediate, lump sum payment or a payment plan over time.Â
If you’re giving a big discount, you’d normally demand quicker payment. And conversely, if you’re giving more time, you’d normally demand more money, given the cost to you and the risk of nonpayment.
The right balance will vary with each case. If your customer’s having financial problems, get a sense of how serious it is. If it’s going out of business, a quick payment makes sense, even with a discount, because you won’t collect a long payout. But if it’s just having a temporary cash flow issue, you might offer more time and demand full payment, perhaps even with interest.
Other Factors When Settling Collections
Even if the customer can pay in full over time, you may have other reasons to offer a discount. Specifically, you may need cash now, or you may not want to police a payment plan.
When settling a collection matter, consider the customer’s ability to pay, your own cash needs, and your willingness to police a long payout.  And whatever you agree to, if it involves a payment plan, you’ll want to file a Stipulation and Order of Settlement that entitles you to judgment if the customer doesn’t pay.
For more information on accounts receivable 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.