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Unless you are being paid in advance for your services, it is likely that debt recovery is a reality of your business’s regular activities. Recruitment firms are no exception. While there are many strategies available to help you recover a debt, prevention is always better than cure. This article will outline some ways to both prevent and recover debt as a recruitment firm.

Manage Client Expectations

Often, a debtor (the person who owes money) will attempt to avoid paying a debt by claiming that you, the recruiter, have not complied with express or implied contractual obligations.

For example, a recruitment firm and their client have a signed written contract for the provision of recruitment services. The firm introduces a candidate to the client. The client subsequently hires the candidate, who commences work. After two weeks, the client feels that the candidate is not the right fit and terminates the candidate’s employment. The client refuses to pay the recruitment firm’s invoice in relation to this candidate.

In this scenario, clients make two common claims. These are that there:

  1. is an additional oral or implied term that the recruitment firm and client agreed to before entering the contract. Clients tend to claim that the recruitment firm expressly agreed to provide candidates that were “suitable and appropriate”, meaning that their tenure would hold some longevity; and
  2. are additional implied terms of the contract. Namely, that the recruitment firm had a duty to:
    1. co-operate and do all things necessary on its part to enable the client to have the benefit of the contract; and
    2. act with due regard for the objective to which the contract is directed.  

You can prevent these claims by effectively managing the client’s expectations. Be wary of both:

  • what you say to the client; and
  • what you put in writing.

If your client believes that you have failed to fulfil your obligations, they are unlikely to want to pay you.

Prevention is Always Better than a Cure

We all know this age-old proverb. Unfortunately, implementing it is not as easy as it sounds.  While you cannot make a client pay your invoice, there are certainly ways to help minimise the risk that a client will refuse to pay.  

The most effective way to minimise such risk is to ensure that every client enters a written contract. Often, recruitment firms provide a brief document intended to create a contract with the client. However, the document is usually:

  • unclear;
  • unsigned; and
  • not sufficiently brought to the client’s attention.

It is essential that your contract is well thought out, sufficiently detailed and specifically tailored for your business and the services that you are providing.  

Key Ways to Minimise Risk and Maximise Payment

As a recruitment firm, there are some things you can be doing on a day-to-day basis to minimise the risk of a client refusing to pay an invoice. These are to:

  1. clearly outline the scope of the recruitment services that you are providing;
  2. ensure that your client has formally accepted your firm’s terms and conditions;
  3. clearly define your payment terms and methods of payment;
  4. manage your accounts effectively; and
  5. keep a paper trail of all communications with your client.
Scope of Services A detailed and defined scope of services limits misunderstandings between you and your client. In turn, this will minimise the chance of a dispute arising.
Formal Acceptance of Terms and Conditions

There is no right or wrong way to do this. Having your client sign a written contract, or confirm in writing that they accept the terms, are the most common and effective.

Your client’s formal acceptance indicates their intention to be bound by those terms.

Terms of Payment

Whether payment is due within 7, 14 or even 30 days, make it clear. A client is more likely to make prompt payment when there is a clear and hard deadline that they are aware of ahead of time.  

Make it easier for your client by providing multiple ways to make payment.

Account Management Be prompt in following up overdue invoices.  Discuss the outstanding debt with your client, and inquire about their reasons for not paying.
Paper Trail

This is equally important for both pre and post contract communications.  

If you commence court proceedings, this paper trail can be used as evidence to support your claim.  

Is Litigation Worthwhile?

Unfortunately, litigating debt recovery can be unnecessarily expensive and time-consuming. Often, there is no real ‘winner’. While you may recover the debt owed to you, it is still likely that you will be out of pocket to some extent. For example, for legal costs or time away from your business.

In most cases, deciding whether to commence a debt recovery action in court will be a commercial decision. Some of the factors to consider when determining if this is the best course of action for you include:

  • the amount of the debt you wish to recover. The legal costs involved in recovering a relatively small debt can sometimes outweigh the amount you are trying to recover;
  • whether your business has the financial capacity to pursue the debt;
  • if the client has raised a genuine dispute about the debt.  If a genuine dispute has been raised, you should expect that the client will defend themselves if any court proceedings are commenced;
  • your client’s financial circumstances. Do they have a genuine ability to pay?;
  • whether you wish to maintain a business relationship with the client. The value in maintaining a relationship with a client that engages you for recruitment services on a regular basis may be more valuable to you than the amount of one outstanding invoice;
  • the impact that not pursuing the debt will have on your business; and
  • whether you can prove your claim. Having a claim and being able to prove it are two very different matters.

Of course, commencing court proceedings is not your only debt recovery option. If you have concerns about any of the above factors, it is important that you speak to a lawyer to discuss your options and the best debt recovery strategy for your business.

Key Takeaways

While there are many ways to recover a debt as a recruitment firm, prevention is always better than cure. Taking a client to court is costly, and may not be worth the time and money spent. There are many things that recruitment firms can be doing on a daily basis to prevent clients from refusing to pay an invoice. These include:

  1. managing their expectations;
  2. clearly defining your terms and conditions; and
  3. having the client sign a written agreement outlining the rights and responsibilities of both parties.

If you would like to know more about debt recovery, download a copy of LegalVision’s Debt Recovery Guide. If you have any questions, contact LegalVision’s debt recovery lawyers on 1300 544 755 or fill out the form on this page.

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