Should You Sue Your Customer?

Vendor ManagementToday we’re posting a guest blog written by Dean Kaplan, President of The Kaplan Group, a commercial collection agency and consulting firm, and a National List client. 

The National List is our key resource for finding attorneys throughout the country for claims that could not be resolved in collections. But before we contact an attorney, we evaluate whether litigation even makes sense.

The potential return versus the investment to cover costs and sometimes an attorney suit fee is the key criteria we consider for our clients.

This is how we look at it:

Potential recovery                                                         $10,000

Net recovery (after 33% contingency fee)                      6,667

Likelihood of actually collecting                                         50%

Expected value of recovery                                           $ 3,333

If our client only has to pay $500 to get a lawsuit started, it makes good financial sense to invest in litigation. However, to calculate the ROI, we need to make an assessment on the likelihood of actually collecting the debt.

During the evaluation process, we look at several criteria, including:

  • What is the likelihood the business will still be open by the time we can start the judgment collection process?
  • Is there evidence that the business has assets or cash flow that would enable successful collection?
  • Are there secured creditors, which would make judgment enforcement difficult or impossible?
  • Are there other liens or judgments that indicate potential collection problems?
  • Is there personal liability from a personal guaranty, the corporation status being revoked, or the business being a proprietorship?
  • Does the person with personal liability have assets or income?
  • Does the business owner have personal resources that could be added to the business to pay off a judgment, even if he/she doesn’t have personal liability?
  • Can we locate the guarantor or owner, in order to serve him/her with garnishments, levies, etc.?

We developed a visual flow chart to help our clients understand how we do this analysis. If we believe the likelihood of collection is sufficient to warrant the investment, we share that information when we contact an attorney to get a quote. We want our legal partners to know what they are getting into with a claim, before they provide a litigation quote. Our client receives a price estimate based on our best assessment of the likelihood of collecting, and it makes it easier for them to evaluate the investment. Often the attorneys will provide additional information, either from their direct experience or research they perform.

Using this approach, it is rare that a client chooses not to proceed if the ROI looks promising. These clients are also easier to deal with during the litigation process, as they know the situation has been vetted and that the minimal effort they need to provide is likely to be worthwhile.

Dean Kaplan, President, The Kaplan GroupDean Kaplan

Main Phone Number: (805)-541-2639

Dean Kaplan Direct: (805)-541-2733

Fax: (805)-541-3005

Email: Click Here 

Please Direct All Mail To:TKG Website Logo

The Kaplan Group 2250 King Court Suite 50 San Luis Obispo, CA 93401


Categories: Business Relationships, Guest Blogs, National List, NL Insider

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