Mediation: The Perfect Vehicle For Resolving Collection Matters

We all know the drill. Your company gets the nod, and after weeks and months of hard work, makes the sale.

But 30 days go by, and the check from the customer is still not “in the mail.” There were problems with the implementation, but the sales contract still says: “you buy it, you own it.” And, even though your company has solved the problem, the customer still doesn’t pay up.

They dig in their heels, and so does your company. Six months go by. Your sales team is called in to help with the collection effort – and now they are working on past sales, rather than prospecting for and closing new ones.

Your “days sales outstanding” (DSO) is going up. Your working capital is negatively impacted. With each passing day your chance of collecting your money diminishes.

You finally send the matter to a collection agency that works on a sliding scale – 20 percent if they can settle before suit, up to 50 percent if you go to trial.

Six months go by and you’ve written the matter off. The collection agency refers it to a lawyer who files suit, asks for fees and now you wait two years to go to trial.

The customer files a counterclaim, and you have to pay hourly fees to defend against the claim. You have lost the client for good – regardless of how good a product you have and how much your client needs it. It is a lose/lose situation.

Mediation Called For

This is the precise situation that demands mediation, which is designed to rapidly resolve a problem to the satisfaction of both parties.

The trick to resolving cases while preserving business relationships is more often romance than hardball. It is essential to figure out what both sides are looking for, which very often is not what they are demanding. When this is done effectively, as in mediation, the case often solves itself.

Mediation also speeds up the process. No lawyers are required. Your company’s collection person can present the case. The goal is to figure out the guts of the dispute and solve it.

The seller wants his money. The buyer wants three hours of help off the clock so it can fully understand the product and maximize its effectiveness. The deal is done, with very little cost to either party. It’s a win/win situation.

Any Stage

A case can be mediated at any stage of the process.

The process is similar, in most companies, when an invoice is not paid. Accounts receivable attempts to collect the debt. When they can’t get the money, in-house counsel sends a letter.

If that doesn’t work the case is referred to outside counsel or a collection company and the process begins anew. With each passing day, the chance of collecting that debt goes down and the cost of collecting the debt goes up.

Early mediation brings the parties to the table, provides both sides with a glimpse of where the case will end up, and often provides the incentive to get things done. Even if the issue is cash flow, a mediator may provide the incentive to get your collectible on the top of the pile. The parties are only limited by their own creativity in finding a solution that works for them.

Mediation is the perfect vehicle for collection matters. Businesses are catching on that alternative dispute resolution is a smart and cost effective solution to litigating its collection matters.

At the decision-maker level, it is always about the bottom line, and mediation can get parties to the proper result at a fraction of the cost of litigation.

If the parties want more certainty they can opt for arbitration where a binding decision is reached. More and more companies are building the arbitration process into their contracts because it is quick, easy and cost efficient.