Effective debt collection practices are integral to operating a successful business...
Effective debt collection practices are integral to operating a successful business. In challenging economic conditions, it is even more important to ensure that you are not leaving money on the table.
Breach of Contract Remedies
In most cases, your legal remedies depend on the circumstances of the unpaid debt and the terms of the underlying contract. Failure to make timely payments will generally be considered a breach of contract or default, so those are the provisions that will guide your recourse. Below are a few additional issues to review:
Notification: The contract will likely specify how and when to notify the other party of the alleged breach. Even if not required, it is always wise to provide notification promptly and in writing.
Opportunity to Cure: Contracts often allow the breaching party a reasonable amount of time to cure an alleged contract breach. While it may be frustrating to allow additional time to pay a debt, it can often lead to a successful resolution without the time and expense of legal proceedings.
Damages: In addition to recovering the cost of the good and services provided, the contract may also expressly provide for additional damages. For instance, liquidated damages are agreed in the contract between the parties and payable under specific circumstances.
Mitigation: The non-breaching party often has an obligation to “mitigate” its losses, which may include re-selling goods/services to another party.
Right to Terminate: A contract might include an express right to terminate if payment is not made on time. However, before electing to pursue this nuclear option, it is important to determine whether the other party plans to abandon the contract or has simply fallen behind on its payments.
Drafting a Demand Letter
A well-crafted demand letter can be an effective debt collection tool. In many cases, it can facilitate a successful resolution without the need for litigation.
In essence, a demand letter outlines the nature of the dispute and states that you are prepared to take legal action, should the other party fail to take appropriate action. The goal of a demand letter is to put the other party on notice of the claim, memorialize the nature of the dispute in writing, and encourage the other party to settle the matter without going to court.
In the case of a contract breach involving the failure to pay, your letter should provide a factual account of what happened, including dates upon which services/goods were provided, the dates upon which payment was due, and how much is outstanding and owed. Your letter should also detail the contract provisions that were violated and the remedies available under the contract.
To facilitate a resolution, the demand letter should also set forth how the other party can settle the dispute, such as paying a certain amount of money by a specified date. Providing a clear deadline helps ensure that you are not left wondering whether the other party is willing to negotiate or whether you should move forward with a lawsuit.
Pursuing Litigation
In some cases, litigation simply can’t be avoided. However, before filing a lawsuit, it is important to evaluate whether your legal expenses will be more than what the other party owes you. The financial condition of the other party is also relevant – is the company struggling financially or just seeking to avoid payment? You should also review the contract to determine if it requires mediation or arbitration.
Once you file a complaint, in certain situations, you may also be entitled to seek relief in the form of a writ of attachment, which will allow you to place a lien on the defendant’s assets. If the other party provided collateral in the initial contract, you may even be able to obtain control over those assets.
Once served with breach of contract suit, the other party must respond within a certain amount of time. If they don’t, you can seek a default judgment, which allows you to seize the party’s personal and real property (land, equipment, lease interests, inventory, etc.) to satisfy the judgment.
How We Can Help
Given the many remedies that are available, it is essential that business owners consult with an experienced New York and New Jersey business attorney to determine the best approach. Scarinci Hollenbeck’s Creditor Collections Group has decades of combined experience in handling the myriad of financial and legal issues related to debt collection, ranging from simple demand letters to sophisticated business matters.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Ajoe Abraham, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
How to Protect Your New Jersey Business When Going through a Divorce
The most effective ways to protect your business in a divorce are put in place before one begins: a prenuptial or postnuptial agreement, clean separation of business and personal finances, and divorce contingencies built into your operating or buy-sell agreements. If divorce is already underway, the priorities shift to establishing how the business is classified […]
The most common franchise disputes involve breach of contract, franchise termination and non-renewal, intellectual property rights, territorial encroachment, royalty and fee payments, franchisor support obligations, and violations of state franchise laws such as the New Jersey Franchise Practices Act. Franchisors and franchisees can often resolve these conflicts by providing written notice detailing the dispute and […]
Reputational Risk and Legal Exposure: Why New Jersey Businesses Must Manage Them Together
New Jersey businesses must manage legal and reputational risk together because modern disputes play out on two fronts at once: the legal proceeding itself and the court of public opinion, where customers, employees, investors, and business partners often reach conclusions long before a judge or jury has had the opportunity to evaluate the facts. Success […]
Eviction Is Not Always the End: Understanding Post-Possession Rent Claims in New Jersey and New York
No. An eviction does not automatically end a tenant’s obligation to pay rent. Post-eviction rent claims are common because recovering possession resolves who has the right to occupy the premises, but it does not extinguish the tenant’s contractual obligations under the lease. Whether unpaid or future rent remains owed depends on three factors: the lease’s […]
Company Dissolved? Legal and Financial Consequences to Expect
A company is dissolved; legally, it ceases to exist. Accordingly, dissolution results in significant legal and financial consequences. It is a process that must be properly managed to avoid continuing liability. The Corporate Dissolution Process Corporate dissolution is the legal process of formally closing a corporation, paying its debts and distributing the remaining assets. Most […]
The Legal Implications of Signing a Triple Net Lease
A triple net lease is a commercial lease in which the tenant pays the property’s real estate taxes, insurance, and maintenance costs, known as the three nets, in addition to base rent. They are most often used in freestanding retail and office buildings and in large single-tenant industrial properties, with terms that typically run 10 […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
