An unfortunate yet undeniable reality of running a business is that you will encounter issues with bad debtors and the non-payment of invoices. A study in early 2016 established that the average date on which invoices were paid in Australia was 26.4 days AFTER the due date. Whilst an area that is often overlooked by business owners, it was established in 2013 that approximately 90% of small business failures can be attributed to the impacts of poor cash flow that stem from such hurdles.
What should businesses be considering when faced with these issues?
We have found that many local businesses need to better focus on the development of thorough, consistent and enforceable terms of trade and contracts when entering into commercial relationships. When properly implemented alongside considered business practices such as requiring pre-payments and obtaining sufficient identification, small measures such as ensuring a written contract is executed when initiating a business relationship can avoid disputes occurring at all.
Initial Management of Disputes
If a dispute arises, businesses should ensure that they take a flexible, fair and realistic approach to resolving the matter. Businesses need to carefully consider their approach including the frequency of contact, concerns about privacy and the method in which they are engaging with debtors. We have found that many businesses would benefit from the utilisation of modern technology such as emailed correspondence and need to ensure that a consistent and professional approach is maintained across all levels of the organisation.
If initial efforts to obtain payment of a debt fail, a formal letter of demand should be provided to a debtor as a final request for payment prior to the instigation of proceedings. If the debt remains outstanding after this time, a statement of claim should be drafted and lodged in the relevant Court (note: this varies depending on the amount of the claim) and a judgment sought in relation to the outstanding amount.
In the event that a judgment is made against the debtor, the appropriate methods of recovery will then need to be determined based on the circumstances of each individual matter. Options include the garnishee of bank accounts and/or wages or even having a Sheriff take possession of the property, potentially even houses in extreme matters, so as to be able to satisfy the outstanding debt.
The Cost of Instigating Proceedings
Our discussions with businesses have indicated that many shy away from formal proceedings due to concerns about incurring additional costs chasing bad debts. Whilst it is a commercial decision that must be considered, it is important to remember that most, if not all, of the legal costs incurred in debt recovery proceedings, can be recovered against the debtor in the majority of matters.
Would you like to know more?
To help local businesses better understand how to minimise debt recovery matters and the available options for resolving issues that may arise, Kenny Spring Solicitors are hosting a seminar on this topic at 12:30 pm on 20 February 2020.
This complimentary session is open to all local businesses. Please click here for further information.
Angus Edwards| Solicitor