Your company loans money to a small business, which then fails to pay it back. When you ask for payment on that debt, they claim they have no cash and couldn’t even pay if they wanted to. Are you still able to collect?
First of all, if you’re considering legal action and a lawsuit, remember that winning the suit doesn’t hinge on whether or not the company can pay at that moment. In other words, they can demonstrate that they have no cash assets and you can still win the lawsuit. They legally owe you the money in any case, so never assume that a lack of capital is an excuse that will remove that obligation — even if the other business owner believes it will.
Considering your options
This is a difficult, situation, but you do have options. For instance, you could:
- Offer to accept a lower amount. In cases where it appears you’ll never get what you’re owed, you have to decide if it’s simply best to get what you can.
- Set up a future repayment plan. For instance, businesses that have too much debt but that do have a stable income may use bankruptcy to establish a long-term repayment plan. You can still collect what is owed, though it may take longer.
- Consider the seizure of other assets. The company may not have cash, but is that only because they used it to buy physical assets? With tactics like establishing a lien, you may be able to get ownership of those assets, allowing you to sell them and recover the cash assets that are owed.
You can see that this is a complicated situation, so be sure to carefully consider your options. Debt recovery and collections can quickly get complicated when you’re unfamiliar with the processes available.