So, You Want to Collect? What Does your Contract Say?

So, you have entered into a contract.  You have supplied goods or performed services.  Your performance was timely.  Your performance complied with the terms of the agreement.  Now, it is time to collect your compensation.  If, like most us lawyers, you were not wise enough to get paid prior to performance, you may have a problem collecting what is owed to you.

Setting aside substantive matters, like security interests in delivered goods or issues of acceptance, rejection or revocation of acceptance under the Uniform Commercial Code, the first thing you should do is look at your agreement for tactical advantages in the collection process.

First, does the agreement dictate a dispute resolution process?   Is there a requirement that the parties mediate before they sue?  Is there a requirement that the parties arbitrate any dispute?  If the agreement is your form, it should require that any mediation or arbitration occur where you do business.  It should also unequivocally state that the customer submits to the jurisdiction of the courts in your state and that the laws of your state govern.

Second, the agreement should provide that interest accrues on the outstanding balance due at a rate that is higher than any other rate the customer is likely paying to any other creditor.  One and one-half percent per month is typically a legal and incentive-inspiring rate.  When interest accrues at 18 percent per annum, the incentive to delay tends to evaporate into the mist.

Finally, the agreement should provide that you can recover your costs of collection, including reasonable attorneys’ fees.  The agreement should not provide for recovery of costs of litigation for the prevailing party because, believe it or not, if you hire the wrong law firm, you could lose.

Don’t hire the wrong law firm.  And make sure your agreements ensure you win before the contest begins.  For more advice on commercial collection, call Cary Ichter or Dan Davis at Ichter Davis (a/k/a: Not the wrong law firm).