When a customer fails to pay an invoice, it can put a strain on your business’s cash flow. While pursuing friendly reminders and attempting to negotiate a repayment plan are important first steps, there may come a time when considering stronger collection actions becomes necessary.
Wage garnishment is one such option, but is it the right choice for your business? Exploring the details of garnishment can help you decide if it would be effective in the debt collection scenarios you’re facing.
What is garnishment?
Garnishment is a legal procedure that can allow a creditor (your business) to collect a court-ordered judgment from a debtor’s (customer’s) wages or bank account. To initiate garnishment, you’ll need to obtain a judgment. You can do this by filing a lawsuit in civil court to prove the debt is owed and secure a judgment in your favor. With the judgment in hand, you can request a court order for garnishment.
There are limitations to garnishment, however. Federal and state laws regulate the amount that can be withheld from a debtor’s wages. This is to help ensure the debtor has sufficient income to live on. Additionally, certain sources of income, like Social Security benefits, are generally exempt from garnishment.
Effectiveness of garnishment for debt collection
Garnishment can be a powerful tool for collecting outstanding debt, but it’s not a guaranteed solution. Therefore, it helps to have a breakdown of the pros and cons of this collection method. On the positive side, garnishment can incentivize the debtor to pay a portion of the debt with each paycheck or bank deposit.
On the flip side, however, the legal process for obtaining a judgment and garnishment order can be lengthy and expensive. Not to mention that garnishment can strain your relationship with the customer, potentially jeopardizing future business.
Garnishment can be a viable option for collecting significant outstanding debts, but it should be a last resort. Consider alternative collection methods first, and speak to a legal team to help ensure you comply with all legal requirements before pursuing garnishment.
