In these unsettling times of COVID-19 (coronavirus) Australia’s Federal Government, in a bid to alleviate the financial stresses placed on small to medium businesses, have made amendments to insolvency and corporation laws.
These amendments will mean changes to debt collection and the debt recovery process for business and debtors.
While there a many people who have been affected financially and genially can not pay, there has been a surge in debtors who are refusing to pay citing COVID-19 as the reason, in most cases the outstanding debts were established prior to impact of COVID-19.
An alarming number of debtors who are more often than not directly impacted by COVID-19 are retaining funds which could be used to pay their creditors.
If the provision of goods or services is in accordance with your business’s agreement then payment by the client is in fact due and payable as per the invoiced terms.
In the event a genuine dispute has arisen from your client of the good or services provided or your client has a valid offsetting claim, it is recommended you seek legal advice before continuing discussions with the client.
With more and more clients refusing to pay outstanding monies, it is important to seek legal advice on debt recovery and all the options available to you, acting on that advice is essential to recovering the outstanding debt.
Initially the debtor would be sent a letter of demand from a solicitor, sending the letter not only shows you are serious in recovering the debt and it is an effective tool which often results in the debtor negotiation or payment.
Failure of the customer to respond to the letter of demand could result in further legal action, once court proceedings are commenced the customer will be served with a Statement of Claim, the Statement of Claim gives the customer a time limit within which they are to either resolve the debt or file a defence.
If the Statement of Claim is ignored and the time reached you will be able to obtain default judgment enabling you to enforce the judgment.
If the debt you are trying to recover is owed by a company $4,000 or more then a Creditor’s Statutory Demand would have been issued to the company to either pay the outstanding amount within 21 days, or make an application to set aside in the court.
What was once an effective debt recovery method is now because of the $4,000 threshold, not so much.
This decision will see more businesses utilizing legal proceedings to recovery debts, this increase of legal debt recovery could see a backlog of debt recover matters in the courts over time, in essence seeking professional advice on non-paying customers should be address promptly.
Unless it is specified in writing as part of your terms and conditions you are not obligated to keep suppling the non-paying customer, in fact continuing to supply the customer will increase your risk of non-payment of the outstanding amount and future amounts.
However, seeking professional advice can help minimise risk, especially if there is a certain situation where supply cannot be stopped so a special arrangement is in order
In some circumstances a non-payment customer will ask to pay the debt in instalments, this can be a suitable solution for both parties.
Should you agree to an instalment plan with a customer it is important to have a solicitor draft an agreement, ideally to include sufficient security to settle the debt if the instalment plan is breached by the customer.
If you as a business owner have been affected by COVID-19 and are not able to pay your suppliers you need to be proactive in dealing with the situation, and unless there is a genuine dispute with the supply, you are still required to pay the invoice if the goods and services have been provided to you.
If you have signed a Credit Application & Terms of Trade the first step in being proactive if you are not able to pay a supplier is to obtain legal guidance.
With most Credit Applications & Terms of Trade the supplier is able to charged interest and seek any legal costs associated with recovering the debt, should there also be a personal guarantee the supplier may use this to enforce payment.
There are a few things that can be done when you are a supplier and your customer cannot pay;
Refuse any further credit and cease supply of goods and/or services
If it is within the terms of trade interest can be charged on the outstanding amount till payment is made.
With the help of a debt recovery lawyer commence proceeding with the court.
Issue a Creditor’s Statutory Demand for Payment of Debt.
It is not in a supplier’s best interest to ‘burn bridges’ so to speak, and most suppliers will consider an agreement in order to continue the relationship by keep continuing the supply while payments are made to settle the outstand debt.
In the event that you have received demands or legal documents regarding non-payment of a debt do not ignore them! Court issued documents have deadlines, immediately obtain professional legal advice from a specialised debt collector.