• November 20, 2013

ClockfaceA client comes to you saying that she is owed $1,000,000.00 for services rendered, the other side, her deadbeat customer, has no basis to object to the bill, no basis not to pay, but has the nerve to propose settling for $800,000.00.  That’s a joke, right?  They’re asking for a 20% discount for no reason.  It’s a no-brainer.  Your client should sue it out?

There’s no right answer here.  Every case is different.  The factors such as client’s interests, various risks and goals, cash flow situation, etc., etc. They all play into it.

On thing is almost 100% certain, though:  if your client has to sue to get paid, she has lost money that she will not recover.  Regardless of a fee-shifting provision, regardless of quick collectability (which can never be assumed), it is almost impossible to recoup the entire amount owed because, if nothing else, the debt collection process itself is taking your client’s time and energy, which are finite, and which can never be recovered.

This sad fact of debt collection is a losing proposition all the way around, particularly in a still shaky economy (which is a positive juggernaut of economic bliss compared to places like Spain (compare this to this)).

This comes to mind in the recent award of sanctions and a default judgment recovered by Keystone Dental, Inc. against a Spanish firm, Dental Implants and Biomaterials, S.L.

It seems fairly clear that Keystone Dental should ultimately recover something from DI&B, which appears to have purchased merchandise (dental implants) but never paid for the merchandise.  Unfortunately for KD, though, it seems just as clear that the cost to KD to recover what it is owed can never be recovered fully.

Commerce can only flourish in societies where there can be trust and, where the trust is ill-placed, enforcement.  Otherwise, the transaction costs, the risks, are so great that trade is slowed to a crawl.

But don’t feel too sorry for Keystone.  It seems to be doing quite well.  Furthermore, it is owned, apparently, by the private equity company Warburg Pincus. If anyone is in a position to absorb the loss, crunch the numbers on the cost-benefit analysis of suing, etc., it is presumably guys like Warburg Pincus. No, the real losers are small less sophisticated businesses that do not have access to sophisticated financial analysis or collection data and who might more often end up paying $X to recover much less than $X.

 

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