Eventually, every business will deal with a customer who won’t pay, or will dispute paying an invoice. You may hear this interchangeably referred to as ‘payment due’ or ‘enforcing a debt’. Either way, it is paramount that you know and understand the legal process to enforce a payment. This article will set out the procedure for enforcing a payment in New South Wales.
Letter of Demand
If you have been unsuccessful in enforcing payment of an invoice, you will likely send a Letter of Demand. Importantly, however, you should first attempt to recover payment using first and second reminder letters. Maintaining a firm but friendly tone can help in maintaining your business relationship.
Following these initial attempts, if payment is still not forthcoming then you may choose to send a letter of demand. This should clearly set out the following information:
- The specific amount owed,
- Any interest payable, and the interest rate,
- The period in which they can settle the matter (either in full or a payment plan)
- What action you will take if the matter is unresolved
A letter of demand from a lawyer can often encourage a debtor to pay the debt promptly.
They Haven’t Complied With the Letter of Demand. What Next?
If the debt is still unpaid following your letter of demand, you have many options available to enforce payment.
In New South Wales, the small claims division of the local court or tribunal provides a relatively informal debt recovery procedure.
A small claim is a claim for:
- Money, goods purchased or delivered, labour or a combination, and
- An amount up to $10,000.
If the debt owed exceeds $10,000 and is less than $100,000, you can still bring an action against the debtor in the Local Court. If, however, the outstanding debt exceeds $100,000, you will bring your action in either the District Court or Supreme Court of NSW.
Should I Enforce a Payment?
Before commencing debt recovery proceedings, you should first consider the following:
- Can the debtor pay? If the debtor has other creditors also seeking payment and is insolvent/bankrupt, pursuing legal action may be futile. You could end up with a hollow victory where you obtain a judgment but cannot recover it.
- Is there is genuine dispute over the facts? Is the evidence to support your claim strong? If your claim is unsuccessful, you could end up with a legal costs order against you.
- Have you brought the recovery action within the appropriate time limit? There is a limitation period, generally six years from when the debt arose, on when you can bring an action.
You can bring a small claims action against a sole trader, partnership or a company. If the debtor trades under a business name, you can identify the business’ owner through a business name search.
LegalVision has lawyers who can provide advice on debt recovery. Simply get in touch with LegalVision today at 1300 544 755. Our dispute lawyers are waiting to assist!
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