Recovery of sums due: Overview, definition, and example
What is recovery of sums due?
Recovery of sums due refers to the legal process through which a creditor seeks to collect money owed by a debtor. This process can involve various methods, including negotiations, formal demands, settlement agreements, or legal actions such as lawsuits, garnishments, or liens. The sums due could be based on a contract, loan agreement, unpaid invoices, or other financial obligations. The creditor may take these actions to enforce payment and recover the owed amount, including any interest, late fees, or other penalties as stipulated in the agreement.
Why is recovery of sums due important?
The recovery of sums due is important because it ensures that creditors can enforce their rights to receive payment for goods, services, or loans provided. For businesses, the timely collection of debts is critical for maintaining cash flow, meeting financial obligations, and supporting continued operations. When debts remain unpaid, businesses may face financial strain or bankruptcy, affecting their ability to function and grow. On the other hand, debtors are obligated to meet their financial commitments, and failure to do so can result in legal consequences, including damage to their credit and financial standing.
Understanding recovery of sums due through an example
For example, a supplier delivers goods to a retailer under a payment agreement that requires payment within 30 days. After 30 days, the retailer has not paid the invoice. The supplier sends a formal demand letter requesting payment, and when the retailer does not respond, the supplier files a lawsuit in court to recover the amount owed. If the court rules in favor of the supplier, they may be able to obtain a judgment and enforce payment through garnishments or liens on the retailer’s property.
In another example, a bank loans money to an individual for the purchase of a car, with a repayment schedule over five years. After several missed payments, the bank decides to pursue the recovery of sums due. The bank may work with a debt collection agency or file a lawsuit to seek repayment, possibly adding late fees or interest to the outstanding balance. The debtor may be required to pay the owed sum, or the bank may take other steps to recover the amount due, including repossessing the car.
An example of a recovery of sums due clause
Here’s how a recovery of sums due clause might appear in a business contract or loan agreement:
“If any amount due under this Agreement is not paid within [X] days after the due date, the Creditor may charge interest at the rate of [X]% per annum on the overdue amount. In addition, the Creditor may take legal action to recover any sums due, including but not limited to initiating a lawsuit, obtaining a judgment, and enforcing the judgment through garnishments, liens, or other available means. The Debtor agrees to bear all costs and expenses, including attorney’s fees, incurred in the recovery of any sums due.”
Conclusion
The recovery of sums due is a vital legal and financial process that ensures creditors can collect amounts owed to them. Whether through informal negotiation, legal proceedings, or other means, recovering sums due is critical for businesses to maintain financial health and ensure the enforcement of agreements. For debtors, failing to pay sums due can result in legal action, additional fees, and damage to their credit, so it is essential to meet financial obligations in a timely manner.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.