Education Article: Are Your Litigation Policies and Procedures in Your Company's Best Interest?
July 9, 2010
Written by Dennis Falletti, SRVP Business Development.
Feature in the ICE newsletter The Cube, Summer 2010 Edition.
It's not a secret that bad debt losses are increasing across all industry lines. During the past 24 months insurance companies report an increase in the number of cases filed, increased litigation costs and declining litigation recovery.
All collection agencies use attorneys for litigation as a final option. Most insurance companies have established general guidelines under which their agencies file suit. Most collection agencies use a two phase collection approach when attempting to collect past due premiums or audit. Then when collections fail to produce, they recommend litigation.
In my conversations with various insurance companies, all had guidelines and procedures for considering and approving suit through their collection agency. The typical guidelines were based on premium size, if contact was made with the business, documentation / substantiation / disputes of the debt, legal fees and collection agency gut instinct.
Is there a better way to manage litigation costs and increase recovery? The answer is yes!
Before considering filing suit, require the collection agency provide you with a copy fo the debtor's credit report before engaging the attorney. Taking this further, I suggest you require the report when also considering settlements. The credit report is a wealth of information and insight into the debtor's predictive payment history and trends.
The report will show the correct business name, whether or not they have state and federal tax liens, outstanding judgments not paid, if they have filed bankruptcy in the past, how many secured creditors they have, their payment history and who they pay on time or pay late or not at all. It also shows collection activity and days beyond terms over the past 6 quarters.
Taking all these factors i8nto consideration, a score is assessed usually on a 0 to 100 or 100 to 1000 basis, the best score being 100 or 1000. Additionally the credit report will show whether or not their score is getting better or getting worse. With this factual information available, you now can make a decision based on facts verse opinion. Our statistics have shown using this method of evaluation, companies reduce 90% of litigation costs while increasing net-back through better settlements and more productive law-suits.
Make an educated decision when determining when to file suit by acquiring the answers to the questions below through a credit report:
* What is the credit score of the company?
* Are the score and pay patterns trending up or down?
* Does the business have unpaid State and / or Federal tax liens?
* Have they filed bankruptcy in the past?
* Do they have pending litigation?
* Do they have judgments; do they have the ability to pay the judgment(s)?
* Is there collection activity reported in their file?
* What are their days beyond terms over the past 6 quarters?
* How many secured creditors do they have?
* What is the size of their operation?
* Are they incorporated or a sole proprietor?
