Being an unsecured creditor of a company that goes into liquidation is not a great place to be. Unsecured creditors will almost always be waiting at the end of the queue to see if any monies are available to be distributed and the likelihood of payment is uncertain. Here are three practical tips to assist you with the recovery of your debts and getting paid.
1. What is in your contract?
The best place to start with debt recovery is at the start of the relationship. You need to have a great framework in place to avoid many of the problems that arise with debtors. That is, you need good clients, good contracts and the right debt recovery systems in place.
A well-written contract is necessary. It doesn’t have to be long and complicated, but it does need to cover the fundamentals, so each party knows where they stand and so that you have a document to rely on if things don’t go to plan. The worst position to be in is trying to work out what the agreement was, especially if it was verbal or partly written. It takes up unnecessary time and additional cost that can be avoided if you have a contract that records everything.
Things you should consider include in your written contract:
- Who are you entering a contract with, and where are they based?
- Are they an individual or a company?
- If they are a company, should you request a personal guarantee?
- What are you providing? Is that properly set out in your agreement?
- What about payment? How and when is that to be paid? Is there a deposit?
- How can the parties get out of the contract? What are the specific termination rights?
- Where will disputes be heard? Is there a jurisdictional clause in the agreement
- How will you attempt to resolve disputes? Through alternative dispute resolution?
2. Do you have clear communication lines?
Once you have the agreement in place, then the business relationship takes shape, and you can start doing what you need to be doing: providing your goods or services in exchange for payment.
The most important thing you can do is keep the channels of communication open. It has been shown that if you are open to your communication, you are less likely to end up in dispute. If a dispute does arise then, your solid relationship will lend itself to reaching a positive outcome without the need for litigation or court action.
So be positive and pro-active with your communications with your stakeholders. Do the little things like providing regular updates, a try to identify areas where you may receive a complaint and manage these earlier rather than later.
3. Getting Paid
Once you’ve set up a proper contract arrangement and have an excellent working relationship, the next step is to be bill your client. It is ideal if you do this when the goods are delivered or services provided (or shortly after). Chances are you’ll get paid more promptly without any dispute if that is the case.
And if all else fails then you can engage lawyers to provide you with debt recovery assistance. Again, if you do this promptly then you are likely to get a better result. If you are looking to recover debts, contact our disputes lawyers.