No one likes chasing customers for money. It is time-consuming and can also be an uncomfortable experience. But, it has to be done. Cashflow is the lifeblood of SMEs. Unpaid debts mean money lost. It hurts your bottom line and impinges on operating capital that is needed to continue your business and its growth.
It might be reasonable to write off small unpaid values to bad debts, but reasonable amounts should be pursued to a conclusion. You may use debt collectors to do this or you may use a company lawyer to pursue the collection of your overdue, either way, it’s important a small business owner or operator to understand the process of debt collection in Australia – this means the laws and regulations applied to the practise of debt recovery.
Before You Take Legal Action
Ensure you have done everything you can to achieve payment. To have the best chance of securing payment you should have a robust accounting process which includes the following steps:
- Terms set according to company standard or based on customer’s creditworthiness
- Invoices sent in a timely manner
- Identification of overdue payments
- Reminders issued
- Contact the customer to request payment
It is important that these steps are clearly documented, so keep copies of correspondence. If payment remains outstanding after what you consider a reasonable amount of time for the customer to pay has elapsed, you have received no offer of payment or requests for payment have been ignored, it is time to take legal recourse.
Taking Legal Action
Always consider if it is worth the time and effort to pursue a legal resolution. Look at how much is owed compared to the cost and time it will take. If you decide to proceed, the first step is a Letter of Demand.
The Letter of Demand
This letter shows the customer you have serious intent.
The letter needs to be formal and addressed by the business owner. It should state how much is owed and what for, and when it was due. It should also include a warning that you are considering legal action while giving a date by when you expect payment to be made.
Dispute Resolution
There are resources to help achieve payment before going the legal route. These may vary by state but generally, you can use the Australian Small Business and Family Enterprise Ombudsman website to find a nationally accredited mediator. There is also the option of lodging a complaint with your local Fair Trading Agency who can act as an informal negotiator.
The Next Step
The most usual course of action after a Letter of Demand or mediation is unsuccessful is to commence legal action in your local court’s small claims division.
It is a straight-forward process that you can work through yourself without needing legal advice. It is a relatively informal process and even if your claim is unsuccessful, the costs to you are limited.
Making a Small Claim
To qualify as a small claim, the debt must not exceed $10,000. For claims over $10,000, the case needs to be lodged in the local court’s general division and claims over $100,000 are heard in the district or supreme court. For anything over $10,000, it is best to engage legal services.
A small claim is a two-step process:
The first is that both parties have to attend a pre-trial review. This is to try and reach an agreement about payment. If the matter cannot be settled, a hearing date is set. If your case is successful, a judgment will be made in your favour.
The second step is debt collection. This might be achieved by a right of execution against your debtor’s property or a garnishee order against the debtor’s bank account.
If you follow each stage, you should be able to achieve settlement of the debt.
About the Author
Local Recoveries Group is one of Australia’s leading debt collectors and recovery specialists. With extensive experience as an industry leader in debt recovery and slow payer management, they have built a reputation as one of the best debt collectors for enterprises of all sizes. Servicing businesses from all sectors, they provide specialised debt collection Sydney, debt collectors Perth, and slow payer management services to businesses across Australia, New Zealand, and the United States of America.