Blog post by Fiona Lester
It is common practice for a business to supply goods on credit terms to its regular customers. Unfortunately, it is equally as common for a business to find itself in the position of being unable to recover an outstanding credit debt from a seemingly well-known customer when the debt goes bad.
Preventing the Problem
Well managed accounts are less likely to go bad.
Key management tools can be incorporated into credit application forms and include:
- Monitoring and enforcement of credit terms of 30 days or less;
- Verification of details of the credit applicant (correct business name, partnership or registered company);
- Personal guarantees by directors;
- Confirmation of valid personal and address details;
- Bank guarantees; and
- Retention of title clauses.
Steps for Debt Recovery
Business owners may be reluctant to involve lawyers in debt recovery, particularly if they have had a good, long-standing business relationship with a defaulting customer. However, as a general rule, the longer a debt exists, the more difficult it is to recover.
In most cases, lawyers should be instructed if a debtor has failed to respond to the issue of invoices and final notices or if there has been personal contact and the debtor has not acted on a verbal promise to pay.
The steps that a lawyer may take include:
- Issue of default notices;
- Issue of letters of demand;
- Negotiation of informal and formal settlements;
- Commencement of a claim through the court system;
- Mediation through the court system; or
- Issue of statutory demands.
Lawyers frequently assist in debt recovery without commencing a court action against the debtor.
If a lawyer is engaged at an earlier stage, he or she is required to make attempts in good faith to resolve the matter without going to court.
A good lawyer will primarily be concerned with putting a client in a better financial position by recovering as much of the debt as possible, in a cost effective way.