Article by John Warlow
In recent months we have been consulted by a number of business owners who have found themselves in financial difficulty as a result of customers not paying their invoices in a timely manner. More often than not, the client’s business is a successful and viable enterprise – but it is being dragged down by the volume of non-paying customers.
In some instances a simple letter from a solicitor is sufficient to prompt payment. However, in other cases, particularly for larger debts, something more serious is required. Expensive litigation is not the only option.
Where the debtor is a company, one of the best options is to serve a Statutory Demand. A Statutory Demand is a formal notice under the Corporations Act. Once the debtor company receives the Statutory Demand it has 21 days to either pay, or show that there is a genuine dispute concerning the debt.
If the debtor does not either pay or show there is a genuine dispute within 21 days, you can apply to the Court for an order that a liquidator be appointed to wind up the company. The threat of their company being wound up is powerful leverage to force payment within a comparatively short 21 day period.
There may also be other options which don’t involve expensive litigation. For example, in the building industry the Building Industry Fairness (Security of Payments) Act provides mechanisms where an independent adjudicator can be appointed fairly quickly to rule on whether an invoice is payable.
There is also the option of mediation which may people overlook. If a debt is disputed it is often possible to arrange a fairly inexpensive meeting with an independent mediator who can assist the parties to negotiate a resolution. Many ‘terms of trade’ agreements will have a dispute resolution clause which requires the parties to meet in the event of a dispute. A face to face meeting where each party can vocalise their issues, particularly if an independent mediator is present, will often result in a resolution.
If your business regularly provides goods or services on credit, it is worth considering having clients sign a Terms of Trade form and a personal guarantee. A well drafted Terms of Trade form can give you the ability to lodge a caveat over any property which the company or the directors own. It can also make directors personally liable for their company’s debts, and give you the ability to repossess any goods which have not been paid for.
Sending a tailored letter of demand or a Statutory Demand is less expensive than most people think, and in our experience is often successful.
For more information about debt recovery options contact John Warlow (Ph 3002 7419 / jpw@warlowscott.com.au).
John is an experienced disputes and litigation lawyer, as well as an accredited mediator.
