By Stefan Chelper, Lawyer
Have a business that provides goods or services on credit? If so, it’s quite possible that you have some customers that have fallen behind on paying their invoices. While it’s all well and good to give customers some leeway from time to time, cash flow is important to the survival of your business, not to mention the time wasting that goes into chasing up those pesky outstanding invoices from your customers.
Steps can be taken to help prevent slow or non-paying customers and to that end we are talking about things like:
Terms and conditions for your business;
Properly constructed credit account applications; and
The above can help as they serve to put your customers on notice of the consequences that may occur if they don’t pay on time, it sets out a clear and importantly written agreement between the parties and also gives you more power in the debt collection process.
Unfortunately, even when preventative steps are taken, this doesn’t always stop ‘bad debt’ from building up. Luckily, there is action that can be taken, from thw smallest to the largest of debts!
There’s the obvious letter of demand. You may send one off yourself however we find these letters have a greater chance of success when sent from a law firm. This lets your debtor know that you are serious and also puts them on notice that legal proceedings may follow. It should be noted that the cost that a law firm charges you for the letter cannot be included in the amount sought from the debtor on the letter of demand itself unless you have agreed terms and conditions with the debtor allowing you to do so.
Failing receipt of payment after a letter of demand is sent, you then have the option of commencing legal proceedings in the appropriate court 0 this depends on the sum of money being sought and the location that the dispute arose (i.e. usually the parties’ location).
Typically, once legal proceedings are commenced, the defendant will file a defence if the matter is in dispute and it will be set down for a mediation. Matters are often settled at this point as parties are encouraged to talk about the issues in dispute and ultimately resolve the issue. If settlement doesn’t occur, the matter is set down for a final hearing so that the court can make the end decision. In our experience, it is not often that a matter doesn’t resolve prior to this occurring.
One other option to keep in mind is in circumstances where the debt is owed by a company and there is no dispute in relation to the debt whatsoever. When this is the case, you have the option of skipping ‘regular’ legal proceedings (serving a court statement of claim) and issuing a statutory demand. A statutory demand is the first step taken by a creditor in ‘winding up’ a debtor company and if left unanswered, gives the plaintiff/creditor the option to seeking an order from the court that the defendant company be wound up and have liquidators appointed. Whether or not this is an option would first require discussion with your solicitor.
Once you have judgment
Once you have either had a win at court, or obtained a default judgment against the defendant, it’s time to try and actually recover the money. It’s not always as easy as the defendant offering up to make payment and so you may need to enforce the judgment debt. There are various options available depending on the size of the debt and the entity type of the defendant (e.g. sole trader, partnership, company etc.). Options - just to name a few - may include:
winding up proceedings;
sheriff’s warrant to seize property;
attachment of earnings; and/or
summons for oral examination.
Choosing which avenue is best is really on a case-by-case basis and requires a discussion with your solicitor.
Where to from here?
If your business has a growing list of debtors, it’s best to take action quickly because the longer you wait, the harder it often is to recover.
At Law Squared, we have a dedicated litigation team waiting to assist you on these matters as well as a Commercial team who can assist with documents such as Terms & Conditions, Credit Account Applications and Directors Guarantees. The specifics of what we can assist with are mentioned in our Litigation Capabilities Statement on our website.
If the above is of any interest to you, don’t hesitate to call our office for a further discussion.
At Law Squared, we partner with passionate entrepreneurs and businesses who need our technical help and expertise in many areas. We’d love to have a chat with you, so feel free to drop us an email at firstname.lastname@example.org.
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