Collection Agencies And Other 3rd Party Options 5 of 6

By Dean Kaplan+

If collection isn't successful, mediation may be an alternative to filing suit

With the help of a professional mediator, creditors and debtors can often come to a settlement that both parties are satisfied with.

Once a credit department has determined that internal debt collectors can not collect a delinquent account, hiring collection agencies is one option they might explore. Another next step in the debt collection process might be to go to mediation. Mediation is an example of alternative dispute resolution (ADR). ADR is a way to resolve a dispute without having to bring in an attorney. Mediation involves bringing in a professional facilitator who works with the creditor and the debtor to reach a satisfactory settlement. This is the fifth article in a six part series about third party options available to credit department. This article will focus on mediation as a way to settle disputes.

When a company and a debtor are in a dispute over delinquent accounts receivable, they can choose to go to mediation and bring in a facilitator to help with the negotiation of a settlement. The mediator’s role is purely as an advisor. The mediator may make suggestions and observations; however, the ultimate resolution of the dispute is up to the two parties involved. All mediation proceedings are conducted in private and are completely confidential.

The true purpose of mediation is to try to avoid going to court. The hope is that with the help of a neutral third party, the opposing sides will be able to reach their own solution. In some states, mediation is a requirement prior to filing a case in small claims court. In many other states, mediation is optional but highly recommended by the courts.

When a case is filed in small claims court, the county clerk may automatically assign a mediator to the case, or mediation may be strongly encouraged. Often mediators are available and located right there at the courthouse. If not, the court may refer the case to a local mediator in the community.

In some cases, mediators will provide their services at no charge. In other cases, the court will pay the mediator a small fee. Mediators are trained to work with people in a dispute and help them reach a workable solution. Most mediators are not attorneys.

Because mediators have no real power in the dispute resolution, negotiation sessions tend to be less formal than a courtroom setting. Sessions tend to last anywhere from thirty minutes to several hours. Often, the more relaxed environment is helpful in promoting productive, non confrontational discussion, thereby encouraging the parties to work together.

A credit department might wonder what the point of mediation is if the debtor has exhibited a total unwillingness to come to terms up to now. Surprisingly, studies show that when two parties willingly go to mediation, the vast majority of the cases are successfully settled without having to go to court. Even when parties opposed to mediation are forced to mediate, many of the cases are settled. Mediation has been shown to be very worthwhile.

Interestingly, studies have also shown that parties who arrive at a resolution through mediation are more likely to be happy with the ultimate outcome than parties who proceed directly into the court system. One reason for this might be that people who arrive at a resolution with the help of mediation are more likely to pay their debt than parties who lose in small claims court.

Sometimes a credit department should proceed directly to court and bypass mediation. This would occur if the creditor is dead set on collecting every penny owed and there is no desire to continue the business relationship into the future. In this scenario, if the creditor wins in court, the dollar amount awarded might be higher than the mediated result. The creditor will still have to collect the debt, however, and this still may prove difficult if not impossible.

What happens if the credit department wants to go to mediation, but the debtor does not? As soon as the mediator is contacted about the case, he or she will typically contact the debtor and attempt to schedule a mediation appointment. Mediators are highly trained in convincing reluctant parties to give mediation a try. They are highly successful at getting the parties to the negotiation meeting, and from there, talking face to face with the help of the facilitator can have very positive results.

Collection agencies do not typically work with mediators. Professional debt collectors are skilled in negotiating on behalf of the creditor with the debtor. During the debt collection negotiations, agencies are in contact with the creditor to determine what an acceptable settlement is. Agencies will never agree to a settlement without the written consent of the creditor.

The final article in this six part series will focus on arbitration. Click here if you are ready to proceed to article six Collection Agencies And Other 3rd Party Options 6 of 6. Click here if you missed previous articles and you would like to go back to read them Collection Agencies And Other 3rd Party Options: In Court.

The Kaplan Group is a boutique collection agency specializing in large (over $10,000) debt collections due from businesses. Founded in 1991, the company has a stellar reputation (A+ rating with the Better Business Bureau) and is recognized as one of the leading collection agencies for results on large and complex matters.