Comparing Negotiated Payment Plans and Settlements to Litigation

We always try to negotiate a Payment Plan or Settlement that is superior to having to sue.

  • 60% of the lawsuits clients initiate are because the debtor will not offer a settlement of at least 50% or a reasonable payment plan or they default on a payment plan.
  • 40% of the lawsuits client’s initiate are because the debtor never even discussed the problem with our collection agency or in house law firm.

The chart below shows 3 hypothetical results on a $24,000 claim when comparing lump sum settlements to payment plans to litigation.

Our goal is always to collect as much as possible as quickly as possible.  We always look for alternatives and seek to learn as much as possible to help our clients make the best business decision possible.  The risk of a payment plan is higher than a settlement because there is no assurance the debtor will make all the payments.  They may go out of business before the payment plan is completed or we may still have to sue after getting some payments.  The risk of litigation is even higher due to the longer time frame during which the company may close or the financial situation deteriorates such that there is no way to collect once a judgment is issued.

Can We Do Anything To Guaranty The Debtor Will Make All Payments In A Voluntary Payment Plan?

  • No, but:
    • Long-term payment plans are typically documented by a simple 1 page agreement signed by client and debtor. If the debtor defaults, this makes getting a judgment much easier.  The debtor can no longer dispute the quality of the client’s service or products.  Instead, we are simply enforcing a payment agreement so we typically get default judgments within a few months.
    • We try to get automatic payments as part of the payment plan agreement to minimize late or missed payments.
      • Typically these auto-payment plans give us the permission to run a credit card or phone check on a specific date each month for the payment amount;
      • These plans always give the debtor the right to cancel (or postpone) an automatic payment. No debtor will agree to an auto-pay plan without the right to modify it due to unforeseen circumstances.

Since litigation can take months or years and requires up-front costs from our clients, a settlement or payment plan may be a far better approach to take.