Debt recovery is a necessary part of running a business, however it shouldn’t be a part of the business that costs you money.
If you have terms and conditions properly in place, every step of what we do should be for fees that are recoverable from your clients and debtors.
Primarily, the best way to ensure you get paid is to have strict credit protocols in place, so that your clients understand that if your invoices or accounts are not paid within the time frames you allow, there will be a follow up. It doesn’t have to be rude or aggressive, in fact the follow up can be a tool to show your clients that you actually care about them.
Here is what we suggest is the best protocol for ensuring you get paid when you want to be paid.
After carrying out the work or rendering an invoice that is not immediately payable (and then paid), ensure that the invoice has a date for payment, clearly stated.
Immediately after the date for payment has passed, some action must be taken. We suggest a generic email from your accounting package eg Xero or MYOB to the effect that the payment has not been received, and could they contact you if payment is not going to be made in the next three days (or whatever time frame works for you).If you don’t have an accounting package, then it is a good idea to set up an email address for accounts eg. firstname.lastname@example.org from which you can send this generic email yourself eg We have not received your payment in the amount of $[insert amount], which was due on [insert date]. If you have made payment, please ignore this email.
At the end of that second time period, someone must call or attempt to call the client or debtor. Ideally it will be a bookkeeper or someone other than the owner, and that communication should essentially be “Hi, I am from the accounts section for [Your business name] and I have a reminder from our system that your payment, which was due on [insert date], has not been received. Is there a problem with payment? Was there something wrong with our service/product?”Usually, the debtor will say something like they are sorry and they’ll get to payment at some vague time in the future eg “I’ll pay it next week.” It is very important that whomever is speaking to them pins down an actual date, by saying “So that means you will make payment by [insert date]?”. The client or debtor will realise at this point that if he confirms a date, and the payment is not made by that date, he or she will be contacted after the next date again for payment. This is often all that is needed, and payment will be made.
If payment is not made by the next date, that is the time that the owner or manager should call the debtor personally. That call should not be a demand for payment, but rather an enquiry as to whether something is wrong!! The point of the call becomes “I just wanted to check that everything is OK with your business? You haven’t made payment, even though our accounts people contacted you, so I thought maybe there was a problem that I could help with?The fact that you are making the call personally, and enquiring about their business rather than demanding money, will often predispose the client or debtor to make payment. It’s also an easy way to leave a message, assuming the debtor does not answer the phone. The message should say something like “Hi [client or debtor name], it’s [your name], from [your business name], I was just calling to check that everything is OK. I haven’t heard from you and payment hasn’t been made so I am concerned there might be some problem. Can you let me know if everything is OK?”. Of course, put it in your own words to make it more genuine.
If that still elicits no response, then it may be time to take the next step. The next step is an email in which you warn that legal proceedings may follow, and that the matter may be potentially referred to your solicitor. An example email is as follows:
Mr/Ms [Insert client surname]We have issued you with invoices for payment of [the products]/[the services] we have provided. We have not received payment of the amounts due under the invoices, and despite numerous attempts at contacting you to find out why, there has been no reasonable response. If you do not make payment within seven days, we will have no choice but to refer the matter to our solicitor, Mr Dean Bosman, for the commencement of legal proceedings. Please note that Mr Bosman has been cc’d to this email.
Please also note that the commencement of Court proceedings will incur and may make you liable for costs in certain circumstances, those costs include the scale legal costs of the statement of claim, together with interest pursuant to Section 100(7) of the Magistrates Court Act 1989 (VIC) (as amended) and the rate is that is fixed by the Penalty Interest Rates Act 1983 (as amended).
Please also note that the commencement of Court proceedings will incur and may make you liable for costs in certain circumstances, those costs include the scale legal costs of the statement of claim, together with interest pursuant to Section 100 of the Civil Procedure Act 2005 (NSW).
Please also note that the commencement of Court proceedings will incur and may make you liable for costs in certain circumstances, together with relevant interest. No further warning or notice will be given.
End the email with your signature.
Use the orange highlighted section for Victoria, the green highlighted section for NSW, and the blue for anywhere else.
The above email is all that is required to warn your client or debtor that legal proceedings may follow. If you issue this demand, we can go straight to legal proceedings without the cost of a demand. The costs for issuing legal proceedings are covered by scale fees, which means that the fee we charge is fully recoverable from your client or debtor.
If you want to use my email address, please send a request through our contact page – we can’t put the email address here because it then attracts spam and phishing emails from bots the crawl the web. There is no fee for using this template.
Something you should note is that the older a debt is, the more difficult it is to recover, so you should have a set process in place, and follow it. The above should help you to recover debt without offending your clients. There is a six year statute of limitations which means that if your debt is older than six years, you can’t recover it, but you can for anything under six years.
If you have any questions about the above, or any questions about the legal process, please feel free to call us, there is no charge for the call. For issuing legal proceedings we charge set scale fees that are recoverable from the debtor, and we set out those fees before we commence so that you know how much it will cost, and what will happen.
Further Services Include:
A letter of demand is required to clearly state the details of the debt owed to the creditor. The demands shall notify the debtor about the debt that is due and payable. The terms for settling the debt must also be clearly outlined.
Our lawyers will carefully explain every step of the debt recovery litigation process, from the preparation stage to court proceedings and what comes after, in order to secure your financial future.
After successful court proceedings, the court will issue a decree so that an enforcement action can be taken in order to recover the debt. Our team will be happy to assist you in enforcing the decree and getting the due payment.
Insolvency proceedings commence when the debtor has not made their payments after 21 days. Our solicitors will help you navigate this process and aid you in issuing petitions at the Court.
A statutory demand is served to the debtor when the debt is not disputed. This is a written demand for the payment of the debt.
Provided that the court proceedings are successful, the court will then issue a decree that allows an enforcement action to be taken in order to get the due payment and recover the debt.
For large claims, it is highly recommended that an experienced solicitor advices you. Here at Mercantile Legal, we provide honest legal advice before, during, and after the proceedings since the trial can be a long, tedious, and expensive process.
Proper securities will be put in place to in order to allow the payment dispute to be decided. We will help you prepare your claim, making sure that your documents and evidence are well-presented.
Security of Payments
The Security of Payment Act is a state-based legislation that helps streamline a court judgment specifically for the building and construction industry.
A client may apply for cost assessment in which any and all information shall be clearly and succinctly set out.