Debt Recovery Australia tips

Debt recovery is a key consideration, especially when obtaining new business opportunities which can sometimes be very challenging.

Debt recovery is particularly important in times like the current COVID 19 global pandemic.  However, offering extended payment terms to the wrong client could result in not getting paid for invoices issued. Thereby making debt recovery all that much more difficult.  Our experience in debt recovery matters in Melbourne and Australia wide gives the opportunity to share some tips in this article with you.

Hopefully, from a debt recovery perspective, this article will give you an outline of some proper due diligence considerations and outline the contract requirements and litigation process which could ultimately become involved in the event of non-payment before the proper debt recovery happens.

Due Diligence For Debt Recovery

By entering into extended payment terms there is inherent risk thereby making debt recovery an almost certain requirement.  Remember, it is best to avoid debt recovery at all for by having on time prompt invoices being paid so as to not need to apply the debt recovery process at all. 

Often this can be achieved best in this context by not entering into arrangements with the overburdensome extended payment terms which could ultimately result in not being paid for works delivered.

It is imperative for businesses to conduct detailed due diligence processes to obtain an indication of the financial capability and capacity for the client to pay for the works pursuant to agreed extended payment terms.  This tends to be a much better way of payment occurring as opposed to resorting to the debt recovery processes.

Before even entering into a business transaction it is prudent to do credit checks and due diligence research to understand or be aware of whom your business is entering into a financial dealing with.  This way you might not even need to rely on the debt recovery process and payment could occur sooner. This is perhaps the best way to ensure the chances are high when wanting to get paid in debt recovery.

The most straight forward and easiest way to determine the credit information required could be through a review of commercial credit report information which shows the appropriate level of data and the track record for consideration.  These can be obtained by a well-known credit report provider such as  VEDa and Dun and Bradstreet for example. Proper credit information can assist in avoiding formal debt recovery processes later down the process.

If the business prospect or potential client does not show a positive history to be warned before the debt even arises in the first place because ‘prevention is better than cure’ as they say, especially in debt recovery.

Have a Written Contract

A written contract at the start of your commercial relationship will best ensure lesser problems down the track especially when it comes time to get paid in debt recovery arising from extended payment terms. Additionally, the written contract can include a clause that requires the debtor to pay interest if the outstanding amount is not paid on time.

A written contract is essentially a written record of agreed terms between the parties.

One of the advantages in having a contract, such as a services contract, is the legal framework and payment terms are set right at the start of your commercial relationship for better payment without debt recovery later being used.

Additionally, the contract might assist to ensure any issues can be addressed down the track or for when needing to rely on your contract for debt recovery including default following extended payment terms or in situations calling for debt recovery and collection.

Remember, a written contract can include a clause that requires the debtor to pay interest if the outstanding amount is not paid on time which can be especially useful in the debt recovery process.

Legal Proceedings To Get Paid In Debt Recovery

If a debt arises in the context of extended payment terms the initial method in pursuit of payment for your outstanding amount might be to engage in open and direct communication with the debtor as the first step in debt recovery.  This way you can send reminders as a first recourse for the payment of invoices that have been issued but remain unpaid thus triggering the debt recovery action.   

Failing such contact and friendly reminders, a next step could involve having a lawyer write a letter of demand to the debtor on your behalf to pay the money owed in the pursuit of debt recovery.  This would often be the final step towards payment of your debt before the necessary step of debt recovery legal proceedings is taken.  

Litigation itself should be seen as a final resort to get paid in debt recovery, commenced only after the other mechanisms have been exhausted. The appropriate court of jurisdiction generally depends on the amount of the debt and the jurisdiction in which the debt arises.

Merely because your debt has been brought to the attention of a court, it does not mean that you will necessarily have orders to get paid in debt recovery determined by a judge. In fact, most matters do settle by the respective parties making offers and normally counteroffers until a settlement arrangement is reached.

Nonetheless, it is possible for an agreed settlement to take place between you and your debtor before the hearing date.  There is no absolute rule as to the timing of the settlement offers, sometimes they can occur immediately after proceedings are commenced. Other times settlements can be achieved on the doorstep of the Court to get paid in debt recovery.

After commencing a litigation process your debtor will need to file and serve its defence otherwise, your lawyer can seek orders for payment of the debt by way of default.  Finally, through the Court process, a decision to get paid in debt recovery can be made in your favour at the trial held in Court.

In a commercial world, things get complicated, problems arise and it is possible for a problem to convert into a dispute that eventually leads to litigation.  This article has outlined some proper measures to ensure the best debt recovery mechanisms are in place in the form of early due diligence processes.

If improper mechanisms in risk assessment are applied, a lengthy and costly process of litigation may become the only recourse in proper debt recovery resulting from non-payment upon entering into extended payment terms. It is in this sense proper due diligence and contracts negotiation might be the best forms of protection for your business to successfully recover payment in debt recovery.

If you are in the unfortunate position of having debt amounts owed you might still be able to force compliance in the form of payment.  This could potentially be achieved by contract enforcement or other steps taken to ensure the best possible chances for your business to be successful in debt recovery for the debt amounts owed in debt recovery.   

If you have any queries concerning steps to get paid in debt recovery matters, please feel free to contact us so we may be able to help in addressing those concerns.

Important disclaimer: The material contained in this publication is of a general nature only and it is not, nor is intended to be legal advice. This publication is based on the law as it was prior to the date of your reading of it. If you wish to take any action based on the content of this publication, we recommend that you seek professional legal advice.