Clients who take forever to pay their bills and treat you like a bank can be frustrating at the best of times. According to credit information company Dun & Bradstreet, it now takes an average 55.6 days to be paid – the slowest rate of payment in three years.
Focusing on a healthy cash flow is essential for any successful business. Getting business debts under control is crucial for small to medium enterprises, especially in the current climate. Identifying ‘bad’ debts promptly leads to a good company credit rating, the survival and growth of the business and security for its employees.
If you’re seeking to recover a business debt, here are some steps you can take to assist with the management of cash flow and debt recovery:
Where possible, obtain money up front to guarantee payment.
Bill earlier: Don’t wait until the end of the month to send out your invoice; do it as soon as the work is done or the products are provided.
Identify problem players: Perform credit checks and rank your debtors by assessing how long they take to pay your bills. Deal with problem players on a ‘money up front basis’ and be consistent in chasing payment immediately so that they don’t take advantage of your line of credit.
Address your invoices to the right person in the organisation to speed up the likelihood of payment.
Discourage late payment by imposing a late payment administration fee and/or interest on late accounts.
Offer small discounts for prompt payment.
Call the debtor as soon as possible after the debt becomes overdue to enquire as to whether there is a problem with the goods or services provided. If not, agree on a date for payment. If there is a problem, agree to resolve the problem, adjust your fee as appropriate and set a new date for payment.
Agree to and document any reasonable offer to pay by installment. Such agreement should include a term to the effect that “the full amount becomes due and payable together with interest on default in paying any installment”.
If payment is not made in accordance with any Installment Agreement, we can help you draft a Letter of Demand allowing “7 days to pay after which legal proceedings will be commenced without further notice”.
If the matter cannot be resolved, the next step is litigation.
Going to Court:
Generally, a person or a company can commence court action by filing a Statement of Claim against a person or company who has failed to make a repayment or pay a debt by the due date. Companies have no right of appearance at court except by a solicitor so you should seek the advice or assistance of a lawyer if you want to file a debt recovery action.
You can file a civil debt recovery claim in the Local Court Small Division (for debts up to $10,000) or General Division (for debts between $10,000 and $100,000). For larger claims, the District Court is the appropriate jurisdiction (up to $750,000).
A Defendant has 28 days to file a Defence from the date it (or he or she) is served with a Statement of Claim. Alternatively, if the debt is not dispute, the Defendant can accept judgment and pay the judgment debt within 28 days or seek to pay by installments, either by agreement with the Plaintiff or by filing the appropriate forms with the Court.
If the Defendant does not accept judgment or make contact with you as the Plaintiff or creditor, you can ask the Court to enter a default judgment in your favour.
If the parties reach their own settlement agreement, they must file consent orders and a Notice of Discontinuance in Court so that the proceedings are withdrawn and dismissed.
If the matter is defended, the matter will need to be prepared for hearing which will include discovery of documentation, taking witness statements or affidavits, filing and serving of evidence, attendance at Court for interlocutory applications and preparing for a defended hearing.
Think carefully before you file a claim as to whether or not the debtor has any money or assets to satisfy the judgment. A hollow victory is not a good commercial outcome. Your best bet is to try and settle the matter to avoid the costs of litigation and the work involved in preparing the matter for hearing. You can settle the matter on a without prejudice basis at any time throughout the court case.
If you are successful with your debt recovery action, enforcement is the next step.
If you obtain judgment against a Debtor, you can take various steps to recover the monies and we can help you through that process. Turnbull Hill Lawyers are engaged regularly to recover debts on behalf of individuals and large corporate clients.