Disputes are an inevitable part of equipment finance, but costly litigation doesn’t have to be — this guide explains how to resolve conflicts strategically, from early negotiation to courtroom action, while protecting both relationships and the bottom line.
In equipment finance, even well-structured deals can run into trouble. A customer might stop making payments, challenge fees or dispute the condition of equipment. Vendors could fail to deliver on promised specifications. Lenders and lessors sometimes find themselves trying to recover assets or enforce guarantees. When relationships sour and money is on the line, understanding how to resolve disputes effectively is essential.
The industry has long recognized that fighting in court is expensive, time-consuming and risky. That is why many professionals first turn to alternative dispute resolution methods, consider when legal action is appropriate and rely on knowledgeable counsel to navigate complex rules. This article explores practical ways to handle conflict, from early negotiation through litigation, with a focus on protecting financial interests while controlling costs.
USING ALTERNATIVE DISPUTE RESOLUTION (ADR)
Negotiation and Direct Dialogue
• Most disagreements in equipment finance can be handled before lawyers or courts get involved. Simple, proactive communication often saves a deal.
• When a lessee misses a payment, a collections manager might reach out to clarify the issue. Sometimes the delay stems from an overlooked invoice or temporary cash flow problem. Talking through a revised payment schedule or a short extension can preserve the business relationship and avoid escalation.
• Preparation is key: review the contract, note any grace periods or cure rights and come to the table with facts and possible solutions. Document outreach efforts in case the matter escalates.
Mediation
• When direct talks stall, mediation is often the next step. Mediation involves a neutral third party who helps both sides find common ground.
• It is private, faster than litigation and typically cheaper than arbitration. In equipment finance disputes, mediation can be useful for issues like early termination fees, residual value calculations or allegations of misrepresentation.
• Because mediation is non-binding, neither party is forced to accept the mediator’s suggestions, but skilled mediators can defuse tension and propose creative settlements.
Arbitration
• Arbitration sits between mediation and full litigation. Here, a neutral arbitrator (or panel) hears both sides and issues a decision that is usually binding.
• Arbitration can be faster than court and offers privacy, which appeals to companies looking to avoid public records.
• Pay close attention to the arbitration clause in contracts: the rules chosen can affect costs, discovery rights and appeal options. Well-drafted clauses set clear expectations and help avoid costly procedural fights.
KNOWING WHEN TO ESCALATE
While ADR is often the first and best choice, it does not always work. Escalating to legal action becomes necessary in several common situations.
• Persistent Non-Payment: If a lessee or borrower refuses to pay despite good faith efforts to work out a plan, legal remedies may be the only way to protect the lender’s position. A formal demand letter often comes first and can prompt payment before suit is filed.
• Disputed Ownership or Equipment Issues: Sometimes disputes go beyond simple payment delays. A customer might claim the equipment never worked as promised or that title is unclear. If mediation fails, litigation or arbitration may be required to settle who owns what or whether warranties were breached.
• Risk of Asset Loss: When collateral is at risk of being sold, hidden, or damaged, speed matters. Seeking a replevin action or other emergency court relief can help secure the equipment before its value erodes.
• Setting a Precedent: Large finance companies sometimes choose litigation when a dispute involves a principle that could affect future deals. A court ruling might be worth the cost to protect the company’s broader portfolio.
WORKING WITH LEGAL COUNSEL
In-House and External Attorneys
• Many equipment finance companies maintain in-house counsel to oversee contracts and manage routine disputes. They know the company’s risk appetite and typical deal structure.
• External law firms bring specialized expertise, especially for major litigation or multistate repossessions. They know the courts, the nuances of Article 2A leases and secured transactions, and how judges handle commercial collection matters.
Choosing the Right Partner
• Look for counsel with direct equipment finance experience. Industry knowledge speeds up the process and lowers legal bills.
• Ask about their approach to dispute resolution, expected timelines and billing structure. Clear communication between business teams and counsel keeps strategies aligned.
Preparing Your File
• Keep signed contracts, payment records, notices and communications organized. Well-maintained files allow counsel to act quickly and strengthen your case in negotiation or court.
UNDERSTANDING COURT PROCESSES FOR COLLECTIONS
Even with best efforts, some disputes will reach the courtroom. Knowing what to expect can reduce stress and help you prepare.
• Filing the Complaint: Litigation begins with a complaint that outlines the claim and the relief sought, such as unpaid rent, repossession or damages. The defendant is served and has a set time to respond.
• Discovery Phase: Discovery allows each side to request documents, ask written questions and take depositions. In equipment finance cases, discovery often involves reviewing payment histories, equipment inspection reports, emails and service records.
• Motions and Hearings: Either party can ask the court to rule on certain issues before trial. A plaintiff might seek summary judgment if the facts are clear and undisputed.
• Trial: If settlement or summary judgment does not resolve the matter, the case proceeds to trial. Most equipment finance cases are bench trials decided by a judge.
• Enforcement of Judgment: Winning in court is only part of the battle. Collecting the judgment may require garnishment, seizure of collateral or other enforcement tools.
BEST PRACTICES TO AVOID ESCALATION
• Tight Contracts: Use clear lease or loan agreements that spell out default triggers, cure periods, late fees and dispute resolution procedures.
• Upfront Due Diligence: Vet customers carefully and verify equipment specs before funding.
• Early Action: Address payment issues quickly rather than letting them age into bigger problems.
• Consistent Documentation: Keep thorough records of all communications and agreements.
• Training Teams: Teach sales, credit and collections staff how to de-escalate conflicts and recognize legal red flags.
THE BOTTOM LINE
In equipment finance, disputes are almost inevitable, but expensive litigation is not. By understanding and using ADR, knowing when to escalate, working closely with legal counsel and navigating the court system effectively, companies can protect assets and maintain valuable relationships. The goal is not just to win cases but to resolve conflicts in ways that preserve capital, reputation and long-term business opportunities.
The Collector Chronicles by Ty Schwamberger is an exclusive series to Monitor that explores the challenges of business-to-business debt collections within the equipment finance industry.
Ty Schwamberger has been involved in Accounts Receivable Management (ARM) within various industries for over 23 years. He is well-versed in the numerous collections and bankruptcy laws, believing that great listening and negotiation skills are at the forefront when dealing with those experiencing financial challenges.
Before joining Elevex Capital as Head of Collections in January 2025, he was the AVP of Member Solutions (Collections) at a NE Ohio credit union. Elevex is his entrance into equipment finance and is excited to immerse himself in the industry.
Schwamberger and his wife live in Brecksville, OH with their two sons.
