It is not uncommon for business owners to have customers that do not pay their debts on time. This can be significant because it hampers cash and reduces business income.
The best way for a business to protect against this is to have a Clear contract with the customer and to bill promptly. The business should also follow up to receive prompt payment. Written contracts with customers are preferable, but verbal contracts can be fine if the terms are clearly understood by all parties.
A business owner can strengthen his/her position to collect a debt if the written contract with a customer includes interest and penalties on the past due debt and a provision that requires the customer to pay attorney’s fees incurred by the business in hiring an attorney to collect a debt. Typically, there must be a contract to provide for the payment of attorney’s fees in order for a creditor to collect attorney’s fees.
If a customer becomes past due in making payments on a contract, a business may commence a lawsuit to collect payment. This is usually a last resort because a lawsuit will certainly damage any business relationship with the customer and may also impact the relationship the business has with other customers.
The business can commence a lawsuit in conciliation court or district court. A conciliation court action is appropriate for business owners who want to proceed without hiring a lawyer and the amount of the claim is less than $15,000 (Minnesota).
The Minnesota conciliation court has a fill-in-the-blank form for a summons and complaint which is easy to use. After the business owner has completed the complaint and filed it with the court, the court will set a hearing date for the parties to appear in front of a judge and argue their case. The hearing date is usually set 30-45 days after filing the summons and complaint. The party who loses in conciliation court may appeal the case to district court.
A district court claim normally involves amounts over $15,000 and requires the business owner to hire an attorney. A district court action can take several months or even years to get to trial. Many district court actions now require that the parties attempt to mediate the dispute prior to trial which can make an action more efficient and less expensive.
If the business owner prevails at trial, he/she will get a judgment against the customer. If the customer does not pay the judgment, the business may take steps to force payment, such as garnishing paychecks or bank accounts or seizing non-exempt property.