If you had to describe what it is like to collect a monetary judgment, to what would you compare it? I have been researching and writing on judgment collection for years. I have heard some people call it a game. I’ve heard others describe it as being similar to a boxing match. As for me, I consider judgment collection more like managing an investment than anything else.
Collecting an outstanding judgment requires an investment of time, effort, and money. You cannot get away from the financial aspect no matter how you go about collecting. But there are different ways to manage your time and effort investments. If you are attempting to collect a judgment on your own, you need to ask if your investments in time and effort are worth the return.
Applying the ROI Principle
Salt Lake City’s Judgment Collectors, a collection agency that specializes in judgments, recently published a blog post comparing what they do with investing. They applied common return-on-investment (ROI) principles to demonstrate that judgment creditors probably shouldn’t try to collect on their own. Their post makes some very good points.
In order to successfully collect from an uncooperative debtor, a judgment creditor has to be willing to invest:
- Time – Rare is the case for which collections are wrapped up in a few days or weeks. Most cases drag on for years. The states know this, which is why most statutes of limitation on judgment enforcement is 7-10 years.
- Effort – Collecting a judgment is not as easy as sending an invoice and getting paid 30 days later. More often than not, creditors have to put effort into gathering information, working with the local sheriff’s office, tracking down assets, and more. It takes a lot of work.
- Money – The people who actually work on collecting judgments have to be paid. There are also expenses involved. They include administrative fees for records searches, investigative costs, and so forth. Creditors need to spend money in order to get paid. The amount they spend is the only real question in this regard.
The thing about the financial investment is that it is unavoidable. Even if a judgment creditor turns collection over to someone else, there is a financial cost to pay. Third parties do not offer their services for free. As for the investment in time and effort, turning collection over to a third party passes the investments on to that party.
Attorneys and Collection Agencies
The third parties most likely to work on judgment collection cases are attorneys and collection agencies. Again, both will charge for their services. But turning a case over to a third party immediately eliminates the need for the creditor to put any more time or effort into it. That’s huge.
Let us say you have a company that successfully sues one of its customers for lack of payment. The company invests a tremendous amount of time and effort working on collection. However, that time and effort would be better utilized for other endeavors.
Bringing in an attorney or collection agency allows the company to pass off the judgment and get back to more important things. The company and its accounting team are no longer putting time and effort into chasing down a bad debt. There is no getting away from the financial investment, but at least the company no longer needs to invest its own time and effort.
As I see it, collecting judgments is like managing investments. Manage them well and the potential for a decent return is there. Mismanage them and the losses could be significant. If you see it another way, that’s fine.
