Running a business isn’t always easy. For many business owners, maintaining a steady cashflow can be difficult to manage at the best of times. However, having customers who don’t pay on time or at all can do serious damage. It’s understandable then, that you may want to recover what you’re owed in Court. Yet before you resort to this, there’s some steps you can take to enforce a payment.
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1. Send reminder emails
Most invoices outline a period in which an invoice is due to be paid. Whether it’s 7, 14 or 28 days, as this deadline approaches you may begin to wonder if it will be paid at all. However, more often than not, customers simply forget to pay, or fail to see a deadline approaching. To get paid within this window, it is worthwhile sending an email a couple of days before the deadline. This email should serve as a gentle reminder of the payment that is due and outline what you’ll do if the deadline passes and payment has not been made.
2. Pick up the phone
Often an outstanding payment may have been the result of an oversight and can be resolved by a simple conversation. Before considering any legal actions, make sure to contact your client to ask about the unpaid invoice directly. Even if you have already sent an email, your customers will have to be explain their failure to pay if they’re talking to you directly. This is an important step, as you can avoid litigation and enforce a payment.
3. Be open to negotiating
Many businesses and people go through tough financial times. Depending on your relationship with your customer, be mindful that circumstances often change and businesses often struggle particularly where there is a recession or economic downturn. Offering to negotiate means that you’ll be more likely to get at least some of what you’re owed back and will build further trust with your customer. Some concessions you can make are:
- Offering to put your customer on a payment plan, for example paying the invoice in fortnightly instalments
- Giving your customer a small discount if they pay straight away
- Giving your customer an extension on the invoice’s due date
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4. Send a letter of demand
If you’ve exhausted all other options, it may be time to start exercising your legal options. The first thing you should do here is issue a letter of demand. Put simply, a Letter of Demand is a letter that you can send to the other party (i.e. the client) in attempt to get them to pay an outstanding amount of money. It is something you can create on your own, or you can seek the assistance of a legal professional.
A letter of demand should:
- Explain to the other party (i.e the client) that they owe you payment for something
- Specify the amount owing and any interest which applies
- Set out a defined period of time in which they must resolve the dispute
- State that you will pursue further legal action if payment is not made
Several things may happen once the other party has received the letter. Ideally, they will pay the full amount owing and you can move on with business as usual. However the other party may; try to negotiate a compromise (i.e. ask to pay in instalments); contest that they owe the money; or simply ignore the letter. No matter the outcome, sending a letter of demand will let the debtor know that you’re serious about wanting to enforce a payment and will take further action if the letter is ignored.
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5. Seek debt recovery in court
If you’ve exhausted the first and second steps without any success, it might be time to commence legal action in the Local Court. Don’t be put off by the thought of expensive and lengthy court proceedings. Recovery of a debt in the small claims division of a Local Court is a ‘do-it-yourself’ course of legal action. It’s relatively informal and the amount of costs payable to the court if you’re unsuccessful is limited.
What is a small claim?
A small claim must relate to money, goods purchased or delivered, labour, or a combination of these. The amount of the claim must be less than $20,000. If your claim is over $20,000 you will have to go through the general division of the Local Court. Claims above $100,000 begin in the District or Supreme Courts.
How does it work?
There are two-steps in the debt recovery process:
1. Once you have taken the matter to the Local Court, you and the other the party must attend a ‘pre-trial review’ with the aim of settling the matter without the need of setting a hearing date. If an agreement cannot be reached, the court will then hear your case and if you’re successful, the court will award a judgement in your favour.
2. The money must then be recovered from the other party. This will often involve taking enforcement action such as obtaining a writ of execution against the other party’s property or securing a garnishee order against the other party’s wages or bank account – essentially a certain amount of money taken out of the other party’s wage or bank account on a weekly basis.
It’s important to note that the case study above was specific to New South Wales, but the good news is that the process is fairly similar across Australia. For more information visit your specific state or territory local court website.
Finally
Having customers who don’t pay can be frustrating at the best of times. Even where your business is in a strong financial position, no business ever wants to lose profits and you’ll find there are times when you’ll have to enforce a payment. The steps we’ve outlined above can be a good way to set about reclaiming unpaid invoices, before proceeding to expensive and time-consuming legal action.
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