Small claims courts have been established across the country as an economic and efficient way for allow business owners to bring cases to court themselves. Small claims courts generally set an upper dollar limit for small claims cases, somewhere in the 3,000 to 7,000 range. The nature of cases allowed in small claims is generally limited to money owed by one party to another. Small Claims procedure is streamlined, and states usually provide detailed information on how to file a claim.
Small Claims Court is a great way to get paid. However, it does not always work. Here are some common mistakes:
1. Misunderstanding the process
Small claims courts do not collect the money for you. If your claim is successful, you will be awarded a judgment in your favor, which is recognition from the court that your claim prevailed against the other party. Few people pay judgment awards voluntarily, so it will be your job to get them to pay.
Most states provide a guide to assist you, and small claims court clerks can help you with the procedure, but cannot provide legal advice.
2. Bad economics
Are you sure that the person or company you are suing has assets? A judgment will give you the right to lien on someone’s home, or garnish their wages or bank account, and it will be up to you to find and attach assets.
The cost of filing a suit in small claims court will be around $ 100.00, but you may incur additional costs such as sheriff/marshal fees to serve the lawsuit on your defendant, and additional costs of liens and garnishments. Costs vary greatly from state to state, so make sure you know what the suit may cost you. Courts generally award these costs back to you along with your judgment, but you cannot be certain when you will get those costs back. Be certain that the dollar amount of your claim is worth your out of pocket costs.
3. Suing the wrong party
To sue a business, you need to make sure you use the correct corporate legal name. Is the company still around? If you sue a defunct company, will there be anything left? Corporate law protects the owners of businesses from business debts, so unless you have a personal guarantee from the owner, you cannot successfully sue an individual for a corporate debt.
Similarly, if you sue an individual for a personal debt, you may or may not be able to include a spouse, depending on the contract (if you have one) and the laws in your state. Before you start, research joint and several liability laws in your state.
4. Suing the wrong type of case
Small claims court is not meant for complex litigation. Pick a case that is fairly cut and dried, and also well documented. Bring all your documentation to court and be prepared to testify.
5. Not showing up
Strange as it may seem, people often do not show up for trial dates. Sometimes they have worked out a settlement, making the trial unnecessary. However, some people do not show up because they do not understand or are  afraid of the process. Still others may have a business or personal issue that keeps them from attending. If you do not show up, you could risk having the case dismissed. You might even wind up with a judgment against you! If you cannot attend, call the court clerk and ask to have your case rescheduled.
6. Thinking small claims court is your only option. Not all cases should be litigated. Some should be outsourced to a collection agency. Other cases might be best on a well documented payment plan.
At the end of the day, small claims court can be a valuable tool, but should not be your only tool. Establish a good in-house collection effort. Find a collection agency that fits your business. Do what makes sense!