“The object of the game is not to get a judgment, it’s to get money,” says Terry D. Zimmerman, a retired bankruptcy and collections attorney in Akron, Ohio. Of course, securing a judgment for amounts due is imperative before steps to collect money can be taken.
One thing small business owners, or anyone wishing to pursue a small claims case should know is that laws governing those matters are governed by state law, so they differ state to state. For example, every state maintains laws governing the highest amount of money a person or company can seek to recover in small claims court.
What to do before you sue In his 40 years of practicing law, Zimmerman says he saw countless small claims cases fail for one simple reason: the businesscompany owner pursuing the case did not have the correct name of the company or entity person they wished to sue. “That is important because so many businesses are franchises, so it’s the local franchise owner who really owes the money, not the overall company,” he says. That means if, for example, a plaintiff/small business owner obtains a small claims judgment against Nationwide Nuggets although it’s the local franchisee who really owes on the debt, that judgment is worthless and the plaintiff cannot collect on it.
Zimmerman also suggests that business owners make copies of checks written to their company. That way, if they obtain a judgment against a debtor, they can already know where that defendant banks. Such information is helpful if a plaintiff wants to attach a bank account in order to collect on a debt.
Another way a small business owner can be proactive about collecting judgments even before they are obtained is to require a customer to sign a written contract.
“More documentation is better than less. A signed contract is great,” says Zimmerman. Moreover, if your company is doing business with a corporation, especially one that’s new to you, Zimmerman says it’s a good idea to request a personal guaranty from the debtor.
It’s small claims. Do I really need a lawyer? Nobody likes to spend money unnecessarily, so a small business owner might think hiring a lawyer to pursue a small claims case isn’t necessary.
Not so fast, says Zimmerman. At least in Ohio, if a plaintiff is incorporated, the company must hire a lawyer to represent them in any type of litigation, whether it’s in small claims case or complex litigation being argued in the Supreme Court. Therefore, it’s imperative for a small business owner check their own state’s laws to determine if they are required to hire a lawyer to represent them, even in small claims court.
Zimmerman says that at least in Ohio, when a corporate company owner represents their business in court, they have been found to have performed the unauthorized practice of law. Since that’s not a good situation to be in, corporations should hire lawyers to represent them, at least in the Buckeye State.
Conversely, Ohio law permits a solo entrepreneur to represent themselves in court, a situation called pro se. However, even if state laws permit a small business owner/plaintiff to represent themselves in court, that’s not a wise decision, says Zimmerman. “Not hiring a lawyer can be penny wise and a pound short,” he cautions.