Collect outstanding debts
For small businesses, bad debts can have a compounding effect on cash flow and have serious repercussions for the business as a whole. Standard terms of trade provide businesses with confidence as to what to expect and what their customers expect in return, so that there is less chance of a dispute arising over the terms of supply. Nancy Hua (Where to start?
If you don't have a standard terms of trade in place you should consult your lawyer about drafting a simple document tailored to suit your business' requirements. Important terms which may be included are:
* a retention of title clause (sometimes called a romalpa clause) which reserves your ownership of the goods until such time as payment is received in full from the recipient;
* an interest clause whereby interest is applied on the amount outstanding after a certain time period. Legally, you will not be able to claim interest until you issue court proceedings or unless you have specified a rate of interest application on your invoice.
Letter of demand
Often, a carefully worded letter from your lawyer will do the trick. Debtors which may be hesitant about paying an account may be prompted to pay upon receiving a formal letter from a legal firm. The letter must request payment in full within a certain number of days, failing which you will issue court documents.
Court proceedings
If the debtor does not pay within the time stipulated in the letter of demand, you have the choice to issue court proceedings to recover the debt owing to you.
The choice you make will depend on the size of the debt and whether it is worth spending more money to chase it. Issuing proceedings will invlove the payment of a filing fee to the relevant court and the costs charged by a process server to personally serve the debtor with the proceedings.
The filing fee varies from $65 to $308.40 depending on the amount of your claim. A process server will charge you between $50 to $150 to serve the debtor and provide you with an affidavit swearing the circumstances of service. You need this affidavit to obtain judgement in the event that the debtor does not respond to your claim.
There is also your lawyer's fees to handle your claim if you don't want to do it yourself. Whilst you will be able to claim back the costs from a debtor, the amount you will be able to claim will never be a full reimbursement.
The choice you make will also depend on whether bankrupcy proceedings have been issued against the debtor. In this case, speak to the trustee in bankruptcy about whether there is likely to be any funds in the debtor's estate.
The debtor then has 21 days from receiving a complaint to file a defence with the court and serve it on you. If a defence is not served, then you should seek judgement from the court for the full amount set out in your complaint, including interest and an amount for the costs which is claculated according to the court's scale. This will cost you a further $15.70.
It is alwats preferable to avoid a legal disute. By adopting effective and legally binding terms of trade and a firm approach, many debts can be recovered more easily. In this case, you should have the following in place for your business: standard terms of trademade known to your customers; prompt and regular follow up of debtors; concise and accurate invoices and statements and a lawyer to assit if and when required.
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