People often ask me how they go after someone who owes them money.  There seems to be a misconception that if you sue someone who owes you money, the lawsuit can be wrapped up within the span of an hourlong TV show and you magically get all your money and your attorney’s fees back in a giant check delivered to your house with flowers and balloons.

Okay, so maybe that’s a slight exaggeration.  The point is, trying to recover money you’re owed is not an easy task.

First, if you spend the time and money to sue, chances are pretty good that even if you win, you won’t be reimbursed your attorney’s fees without a contract that says you should.  Also, if you win, and get a judgment in your favor, the money you’re owed doesn’t magically appear in your bank account.  You have to collect the judgment.  Not only do you have to send the Constable’s office to collect, but you have to tell the Constable where to find the money – bank accounts, cash drawers, etc.  If you don’t have this information, it’s expensive to pay someone to find it.

If you’re a company, you cannot represent yourself in District Court or Justice Court.  You have to be represented by an attorney.  A company can represent itself in Las Vegas Small Claims Court but can only sue for up to $7,500.

At a minimum, if someone owes you money, you have to first make a formal demand.  This is best done in a letter which gives the other person a deadline by which they have to respond that is at least ten days from the date they received it.  Send the letter certified mail, return receipt requested, and save the return receipt if it ever comes back.

If the deadline comes and goes with no response, your next step is to file a lawsuit.  Again, the amount in dispute can dictate the court in which the suit is filed.  If you’re a company, keep in mind you can represent yourself only in small claims court.  In any other court, you must hire a lawyer.

Once you file the lawsuit and serve it on the party that owes you money, they have 20 days to respond or you can seek a default judgment against them.  If they respond by filing something called an “answer,” then you’re in litigation and can expect to be fighting for over a year and spending a lot of money which you may never recover.  Of course, the case may settle at some point but there will be a cost in time and money to get to that point.

While I don’t make it a practice to discourage people from fighting for what’s fair, the unfortunate reality is that litigation is an expensive, time-consuming process.  My clients are all small businesses, most of whom can be crippled by a lawsuit not only because of the expense, but also because it is such a distraction from doing what it takes to maintain the business.

So if you’re a small business who is owed money, give the notion of suing some thought.

My advice?  Where possible, change your company policies to get more (if not all) money up front, be sure to collect information from the other person at the outset like driver’s license info and social security numbers, get personal guarantees if the other party is a business, and keep copies of cancelled checks.

Originally posted by Gina Bongiovi.