Would you be struggling if your clients didn’t’ pay you all the money you are owed?
Unpaid invoices are more than a slight inconvenience, especially when funds are tight and there isn’t much wriggle room to accommodate late debtors. Not being paid can put unnecessary stress on you and your business. That loss of extra cash could mean you can’t afford your rent or mortgage repayments or to pay employees.
There are a few minor debt collection services that help make life easier, such as our friends CGCollect who charge a small fee for sending a lawyer approved letter to your debtors demanding payment. It’s a nice way to avert the need for lawyers, but get your message across to your outstanding debtors that you mean business.
Here are some tips to help you sort your debtors and get paid sooner:
- Review the T&Cs of your contract
The first thing to do is to dust off the contract or the T&Cs that your debtor agreed to and read it carefully. You need to understand your rights under the contract before heading in with guns blazing. There may be terms that deal with payment conditions and debt collection that you have agreed to abide by. This is why getting your T&Cs tailored to your business and not copied from a website on the internet is incredibly important.
Just remember, if you don’t have a written contract, oral agreements are still legally binding provided that there is some proof of what was said and agreed to. It’s a little more difficult to fight, but not unachievable.
- Check first before acting
While it may seem obvious, you should take some time and triple check if you have followed your standard invoicing and follow up payment procedures. Think about the following:
- Did I actually send the invoice?
- Was it addressed to the correct person or organisation?
- Was their postal address or email address correct?
- Did I include a read receipt?
- Did it specify the amount that is outstanding?
- Did it include a due date for payment?
- Do I have a right to charge interest or an administrative fee for late payment?
Don’t jump to conclusions and at all costs avoid unnecessarily damaging your relationship with your customers. It is best to ensure first that you haven’t made a mistake.
Remember that people can genuinely forget to pay invoices, or maybe the invoice was caught by the junk filter, or the client had a family emergency. Although these aren’t excuses from a contractual point of view, it’s important to understand that things happen. So, think about whether you send a polite reminder email following up on the outstanding amount in the first instance. Often this is enough to jog their memory into paying you.
- Drop the stiff business approach and be personal
We recall an article written by Andy Clarke over a decade ago who suggested that the most effective way to collect debt is to ‘be human’. Clarke suggests that you should “abandon a stiff business approach and instead write one email, carefully worded to express how it personally feels. After-all, business may be business, but people work with people.”
It might be an idea to consider a phone call or a face-to-face meeting instead which can be even more effective. You should definitely keep detailed notes of those calls or meetings.
If you have tried a phone call, an email or a meeting and that does not produce any real payment from your debtor, then you should consider a different approach.
- Send a letter of demand
We completely get it – lawyers aren’t always cheap. So, when it is time to bring out the big guns, you’re probably thinking about costs and delays. Sending a letter of demand for payment of outstanding monies has never been easier and cheaper. Our good friends at CGCollect provide an affordable debt collection service which involves a lawyer approved letter of demand that will quickly and simply show your debtor that you’re serious about recovering your money.
A letter of demand usually includes the total amount of outstanding monies owed to you, confirmation of the invoices issued and their due dates and a firm emphasis on your intention to commence legal proceedings if the debt is not paid within the stipulated time frame. The prospect of legal action, alongside a formal letterhead from a lawyer, is often enough to promote payment.
If payment still hasn’t been received, then your options from here will depend entirely on your appetite to chase the debtor and the amount of money that you are willing to spend to retrieve the debt. It’s important at this juncture to really step back and understand how commercial it is for you to pursue the debt, including whether the amount owing to you is worth the trouble.
The next few options are available to you:
- Use a Debt Collection Agency
If you still haven’t been paid, hire a debt collection agency to pursue the debt on your behalf. Formal debt collection agencies usually take a percentage of the amount owing as their fees for pursuing the debt, so make sure you read their T&Cs before signing up. You should also let the customer know you are engaging a debt collector.
- Lodge a debt dispute with your Civil and Administrative Tribunal
Depending on the total amount owing to you, and subject to your contractual documents, there may be cause to seek some help from your state’s or territory’s Civil and Administrative Tribunal. These tribunals are essentially a less formal court process, whereby you would have to apply for a minor debt dispute against your debtor. Different states and territories have different processes, but usually for minor disputes it involves mediation and, if that is unsuccessful at resolving the dispute, then a tribunal hearing. During this process you should try to remain commercially minded as the alternative if it doesn’t resolve will mean most probably going to court, which is expensive. If you need assistance during this phase, or help preparing your Civil and Administrative Tribunal application, then the team at Bolter can help. Application fees are usually charged by the Civil and Administrative Tribunal.
- Get a lawyer involved
After trying everything, you may want to take legal action. If you do engage a lawyer, usually they will require copies of the contractual documents, emails or communications and invoices. It’s always handy to be upfront with your lawyer about how much you are willing to spend collecting the debt, so they can have an idea of your budget. The lawyer will usually review the documents and inform you of how to proceed and the likelihood of success. If the debtor doesn’t respond or make payment, but then appoints their own lawyer, then it is likely the costs will increase. You should be prepared for this.
- Go to Court
In some instances, you may have no options left but to go to court to seek a formal courts judgement that the debt is owed to you. Unfortunately, this process is expensive and can be anywhere from $5,000 to $15,000 to commence and run a minor debt proceeding. It’s important that you weigh the amount of the debt owed against the costs of bringing a legal action against your debtor as sometimes it just isn’t worth it.
Ways to avoid unpaid invoices
The best way to get paid is to do everything that you can to avoid unpaid invoices in the first instance. This may mean that you do your research on potential or new customers, charge your customers upfront or have a general discussion around billing when you meet or speak with your customers. If your customers don’t align with your billing methods or give you an impression that billing will be an issue, then perhaps you need to consider whether you undertake work for them at all.
Another strategy is to give discounts to your customers for early payments. This reverse psychology works by offering incentives for doing good and paying early, rather than a penalty for being bad.
A common mistake is forgetting to include your terms and conditions with your contract documents or formalising an agreement, which makes collecting unpaid invoices more difficult, but not unachievable. You should consider reviewing your T&Cs document to ensure that it aligns with your billing practices. This way you will have locked tight terms that will make your position, when it comes to the outstanding invoices and chasing the debtors, more rock solid.
Overall, collecting unpaid debtors and chasing debts can be a longwinded uphill battle, but there are strategies to follow early on when you engage your clients. If you need some advice, your T&Cs reviewed or even a referral to our friends at CGCollect for your lawyer approved letter of demand, get in touch with the team at Bolter. We’re here to cover your legals while you focus on your business.