If our clients’ only have to pay RM500 to sue (our clients pay the out of pocket costs and non-contingent suit fee if any), most of them are likely to proceed with litigation in the situation described above. But if it costs RM1,500, they won’t, even though a statistician would tell you that every time you can ‘bet’ RM1,500 and have an expected return of RM3,250, you should take that bet.
We win 99% of the lawsuits we initiate at our collection agency, so winning isn’t the issue. The biggest uncertainty in estimating ROI is determining the likelihood of actually collecting. In the example above, if the likelihood of collecting was 75%, the expected value of recovery would be RM4,875 (75% x RM6,500), and at that point, even a RM1,500 investment looks more compelling. But, if the likelihood of collecting is only 20%, then the expected value of recovery would only be RM1,300 (20% x RM6,500), and at that point, it is hard to justify even a RM500 investment.
When evaluating the likelihood of collecting, we look at a number of criteria, including:
- • Is the company likely to still be in business by the time we can start the judgment collection process?
- • Does the business appear to have cash flow or assets that would enable successful collection?
- • Are there any secured creditors which would make collecting difficult or impossible?
- • Are there other liens or judgments that could make it more difficult?
- • Is there personal liability as a result of the corporation status being revoked, a personal guaranty, or the business is a proprietorship?
- • Does the person with personal liability have assets or income that could satisfy a judgment?
- • Does the business owner have personal assets to inject into the business, even if they don’t have personal liability for these specific invoices?
- • Can we locate the company owner and/or guarantor for judgment collection efforts?