Debt recovery options for small businesses
As a branding agency business owner, you are likely so focussed on building well thought-of and stylish brands for your clients, that you do not have much time to deal with the very annoying problem of unpaid moneys owing to your business.
However, with the right help and information, recovering your debts goes from being an unmanageable situation to a straightforward one… and means your business will receive the money you have worked so hard for (without damaging your reputation). We will walk you through your options below so that you have an understanding of what may be involved – and give our friendly team at Sinclair + May a call for any assistance you require.
First step – we can issue a formal letter of demand:
A letter of demand requests the debt be paid, and details the exact amount owed and the time in which the debtor has to pay that debt. We would specify the possible legal consequences that may result if the debt remains unpaid.
This option is low cost and communicates to the debtor that you are serious about recovering your debt – therefore encouraging the debtor to pay.
Hopefully, the debtor will pay the debt as requested, or ask to pay the debt in instalments – in which case we can draw up a binding contract detailing the repayment proposal.
Sometimes this is not effective – the debtor may ignore the letter or raise a dispute as to why they should not have to pay you.
If the debtor refuses to pay – you could commence legal proceedings:
But beforehand you need to weigh up whether this is going to be worthwhile as commencing legal proceedings can be expensive. Consider the worst-case scenario – you may be unsuccessful and have costs ordered against you, meaning you would have to pay all or part of the debtor’s costs. Another thing to note – this option could be damaging to your business’ reputation, depending on the circumstances.
If initiating a claim is the right thing to do, we would file a statement of claim on the debtor setting out your claim.
The debtor would have a chance to respond to this (if they fail to do so we can make an application to the court for default judgement to be entered against the debtor).
If the debtor claims against you in their response we can file a cross-claim on your behalf.
We would then file your evidence backing up your claim, as would the debtor.
Then there would be a hearing before the court where the judge or magistrate will decide on the matter; and set out their reasons. This judgement may be legally enforced if necessary.
Sometimes it may be appropriate to issue a statutory demand:
Statutory demands are not supposed to be used as a debt collection tool, however they are an effective way to recover the money due to your business, if appropriate in the circumstances. This is covered in an earlier blog but here is a little summary – a demand may be a good option when:
The debts are due and owing to you, and the debtor company is able to pay those debts; and
There is no dispute about the debt.
A statutory demand is not complicated – it is a prescribed court document that specifies the total amount owing (with interest if applicable) and requires payment by the debtor within 21 days of service. It must be signed by you or your lawyer and be accompanied by an affidavit.
Consider dispute resolution:
Alternately, you may want to try mediation or arbitration with the person or business that owes your agency money, in order to reach a commercial settlement. If you and the debtor are on reasonable terms it is a good option – it allows your business to maintain a friendly reputation, and also avoids the legal expense (and stress) of entering into court proceedings.
There is no obligation on the debtor to participate in mediation, and it is unlikely to be successful if the debtor is certain they do not owe your agency money for the work done.
If you are having issues with outstanding invoices, and want to understand your options to recover debts owed to you, please give Sinclair + May a call.
This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation.
Published Nov 20, 2017
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