As a business owner, you may have to deal with customers who do not pay their invoices on time. Some customers may even dispute the amount that they owe you and cause more issues for your business. This can be extremely frustrating and could even impact your business’ ability to generate profits. Therefore, it is important for you to know how best to recover a debt. This article will outline the steps you should take if you need to enforce payment in New South Wales (NSW).
Contact the Customer
Before taking legal action, you should always directly contact the customer about the debt that they owe. When discussing the debt with the customer, make sure that you communicate clearly. You will need to clarify why, specifically, they have not paid you yet. Often, customers will not have paid your invoice because they:
- do not have the means to pay you; or
- have an issue with the amount on the invoice.
Make sure that your communications with the customer are in writing by sending an email or letter. If you discuss the matter on the phone, send a follow-up email which confirms the issues that you talked over. Having a clear record of your conversations with the customer may come in handy if you need to take further legal action down the line.
By directly discussing the matter with the customer, you may be able to resolve the issues quite easily. However, in more difficult circumstances, you may need to undertake legal action to enforce a payment.
Letter of Demand
Sometimes, you may be unsuccessful in enforcing the payment of an invoice after clearly communicating with a customer. If so, your next step should be to send a letter of demand. A letter of demand is a formal request, usually written by a lawyer, that demands something from the other party. A letter of demand should set out:
- the specific amount that the party owes;
- any interest payable and the interest rate;
- the period in which they can settle the matter (either in full or through a payment plan); and
- what action you will take if the issue is unresolved.
A letter of demand will usually threaten further legal action if the other party does not address the debt within a certain period of time. This period usually varies anywhere from 14 days to 28 days.
A letter of demand can be instrumental in enforcing payments as it puts pressure on the other party to act quickly. Failing to respond to a letter of demand can appear to be very problematic if the matter ever goes to court.
Should I Go to Court?
If the other party ignores your letter of demand and the debt remains unpaid, you may wish to take the matter to court.
In NSW, the small claims division of the Local Court of NSW provides a relatively informal debt recovery procedure. If your debt amounts to less than $10,000, you can bring the matter to the small claims division. Furthermore, you can still bring an action to the Local Court if the debt that the customer owes exceeds $10,000 and is less than $100,000.
However, if the outstanding debt exceeds $100,000, you will need to bring your action to either the District Court or Supreme Court of NSW.
Should I Enforce a Payment?
Taking a matter to court can be expensive and time-consuming. Therefore, you should consider whether you have a high chance of success in receiving the money back. You will need to question whether:
- the customer can actually pay the money back. If they are insolvent or bankrupt, it is unlikely that you will ever receive any payment for the debt;
- you have evidence to support your claim. If not, your claim may be unsuccessful and you could end up with high legal bills; and
- you have brought the recovery action within the appropriate time limit. Usually, you cannot bring an action if the debt arose over six years ago.
As a business owner, it can be frustrating if you need to chase up debts from customers. However, in NSW, there are a number of steps you can take to enforce a payment:
- clearly communicate with the customer regarding the issue;
- send a letter of demand; and
- take the matter to court.
If you would like assistance with enforcing the payment of a debt, contact LegalVision’s debt recovery lawyers on 1300 455 755 or fill out the form on this page.
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