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As a business owner, there will be times when you would no doubt find yourself in the unfortunate position where another person or company owes you a sum of money. It is in your best interests to recover the money as efficiently as possible, hopefully minimising costs and time along the way. You may want to try going to court straight away, but generally, that is both costly and time-consuming. This article will set out a number of steps that you can take to recover the payment of a debt without going to court, such as using a letter of demand, negotiations or alternative dispute resolution.

1. Call Up and Ask for Repayment

There is no reason to engage any third parties if you have not tried to reach out to them yourself. It is quite common that both individuals and businesses will forget that they have payments outstanding. The additional benefit of this step is that you can maintain any friendly relations you may have with the other party. It is not the best look for a relationship if you start sending legal letters to their address straight away. Therefore, simply giving them a call or shooting off an email might be enough to compel them to pay.

2. Send a Letter of Demand

If you have tried the above and have not been successful, the first legal step you should take is to send them a letter of demand. A letter of demand is seen as a warning to the debtor to pay back the debt. If the debtor does not comply, you can rely on their non-compliance to start enforcing payment through other means. 

Note: If you intend to commence legal proceedings further down the track, it is important that you start with issuing a letter of demand. That way, you can show the court that you took appropriate and reasonable steps to try to recover your debt and that formalising proceedings was the last recourse available to you.

When drafting a letter of demand, you must include:

  • clear wording about who it is addressed to and where. If it is an individual, then it should be addressed to the individual. If it is a company, then you should address it to an officer of the company, such as the director and send it to the registered office of the company. 
  • date of the letter. It is important to track when you took this step;
  • details of the debt that you want to be repaid (attach invoices or similar if applicable);
  • a date by which the debt needs to be repaid (depending on the amount, this should be a reasonable timeframe, usually a minimum of 7 days); and
  • a message to the debtor that if they do not pay by the date in this letter, you will take legal action to enforce the debt. Bear in mind that if you are not in a position to do so (due to funds or the overall value of the claim), you need to be careful about making this point. 

3. Engage a Solicitor or Debt Collection Agency to Send a Letter of Demand

If your initial letter of demand is unsuccessful, the next step you can take is to have a solicitor or debt collector send out a letter of demand on your behalf. Because you are engaging professional services, you should expect that you will need to pay fees. It is important to do a cost-benefit analysis of taking this step to weigh up the costs of paying for external services versus the actual amount you are trying to recover. 

The benefit of having a solicitor or debt collector is that it adds pressure to your position when trying to recover a debt. It gives the impression that you are taking this non-payment seriously. Additionally, having the added bolster of a legal or professional letterhead is often enough to scare a non-paying party into complying.

Note: If the debt is owed by a company, and the value is higher than $2,000, your solicitor may be able to issue a statutory demand on the debtor. 

The statutory demand will be issued to the debtor and demand that they either: 

  • pay the debt; 
  • apply to the court to set it aside; or 
  • request you to withdraw it. 

If the other party does not respond within 21 days, you can presume the company is insolvent. This will have serious consequences on the company that owes the money.

4. Negotiate Repayment

If the debtor responds but is unable to make complete payment of the amount, you may want to consider whether you would be open to other forms of having the debt repaid. If the debtor is willing, negotiating a payment plan for the unpaid amount is typically a faster and cheaper way to resolve the debt. 

5. Alternative Dispute Resolution (ADR)

You may want to consider dispute resolution means outside of court, such as: 

  • mediation; 
  • conciliation; and 
  • arbitration. 

These processes allow for a more amicable and efficient resolution of disputes without having to go to court. Even once you commence court proceedings, you can still undertake ADR at any time during the proceedings if parties are willing.

Key Takeaways

It might be tempting to want to rush to court after having chased a borrower for months to no avail. However, other options are available that can cut down on your lost time and cost. If you do require debt recovery assistance, contact LegalVision’s debt recovery lawyers on 1300 544 755 or fill out the form on this page. 

Frequently Asked Questions

What steps should I take before I engage a solicitor or debt recovery agency?

You can try reaching out to the person again. Sometimes they will just have forgotten to pay the debt! If that does not work, you can try issuing a letter of demand to them yourself to let them know you are serious about recovering the debt.

What should I include in a letter of demand?

You should clearly address it to the individual or company that owes the debt. Additionally, include the date you sent the letter, the amount and details owing and the deadline to repay the amount. Finally, you should include notice that you will escalate this if they do not pay. However, be wary of using a threat like this if the possibility of escalation is quite low.

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