If you run a business, chances are you have experienced a difficult customer who refuses to pay you for your services for a variety of reasons.
Your aim would be to recover this debt in a timely manner with as little cost as possible. As such, you want to avoid jumping to litigation straightaway, as it can be a lengthy and costly process.
Below, we list some of the steps you can take to recover the debt without going to court first.
- Make Contact
The first step in the process is to make contact with your customer. Depending on the timeframe stipulated on your invoice, you should remind your customer of the invoices by doing any of the following:
- Sending the invoice again with payment reminders
- Calling and/or emailing the customer and if they are a business, their accounts department
More often than not, the customer has either forgotten to make payment by the deadline or completely missed the invoice. A quick call or email to chase up the payment could resolve the issue.
- Issue a letter of demand
A demand letter is an essential step in the debt recovery process and essentially an overdue payment letter.
You can always issue a letter of demand on your own to your customer, as a first step. Some things to include in such a letter are:
- Reference number for the job
- The amount of debt (including any interest)
- The date of the original invoice
- The time and date the invoice had become due and payable
- A detailed description of the services provided for the debt owed
- Payment terms (i.e. how long you give them to make the payment. Typically it can be anywhere between 7 to 14 days.)
- A brief statement about what may happen should they not pay – i.e. legal action
If you are a NECA member, we can provide you with a template for free otherwise, please get in touch with us for a quote.
Where you have taken the above step and your customer fails to make payment after you issue this letter of demand, you can engage a lawyer to issue a letter of demand on behalf of your company. Having a lawyer issue the letter does contribute to the gravity of the situation, which may result in the customer taking the letter seriously.
- Negotiate a repayment plan
If the customer does get in touch after the letter of demand is issued to notify you that they are unable to pay the full sum straightaway, you can negotiate a payment plan with them. Having the customer pay in instalments is a good option rather than to immediately take the customer to court. A documented payment plan acknowledged by the customer, is critical, particularity in the event the customer defaults on repayments later down the track.
Mediation is a good way for you to try and resolve a dispute prior to going to court. It depends on your situation whether Alternative Dispute Resolution (ADR) is ideal. Where you are trying to maintain a working relationship with your customer for future work, this may be a good option. CLS has a qualified mediator in the team who could assist with ADR queries.
If you have a debt to recover and want to understand your options better, or require a template letter of demand, you can get in touch with us via firstname.lastname@example.org or 1300 632 247 or via our Contact Us page.
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