Are you a creditor that has attempted all routes to collect unpaid invoices to no avail and thinking about legal debt collection?
If so, it is likely that you are feeling incredibly irritated and stressed about the matter and don’t really know what to do.
You are not alone in this! Many creditors experience, at some point in their career, a client that simply will not pay their invoice no matter what you try.
This is why it is important to any business owner that uses invoices to have some tips and tricks for how you can use the law to finally collect them when clients just don’t want to pay.
In this article, our expert Australian debt collectors will discuss 3 legal options that you can use to finally collect unpaid invoices and how using said options can help to benefit your business, helped by our legal partners.
What Can I Do Before Taking Legal Debt Collection?
Before proceeding to take legal action, it is in your best interest to ensure that you have exhausted all other routes first.
Legal action, in any form, can cost you a lot of money and be an incredibly time-consuming process.
It is wise to consider some of the following options first if you haven’t already of course.
Non Legal Debt Collection - Contact Your Debtor
The first step towards collecting a debt from a client is to get in contact with them! This tip may seem a little obvious.
Of course, you cannot collect an unpaid debt without contact.
Well, creditors can often skip this step as they assume that speaking with the client wouldn’t be particularly helpful if they aren’t paying their debt anyway. The reality is quite the contrary!
A client may forget about their debt or be in an alternative situation where a simple email or phone call may help them to pay you what they owe!
Non-Legal Debt Collection - Send Overdue Reminders
Once you have tried to engage in some friendly contact with your debtor, it’s probably time to become a little harsher and tell them the reality of the situation.
You may wish to send them an overdue reminder informing them of your intention to take action if they continue to not pay their invoice.
Non Legal ADR - Negotiation
Negotiation should be the last resort before employing some legal strategies, but it can be beneficial all the same.
If your debtor finds themself in a situation in which they do not have the financial means to pay you as earlier agreed upon, negotiation is a great option that you can use!
Quasi Legal ADR Methods
Another non legal debt collection option that you may wish to engage in to try to recover your unpaid invoices from clients is ADR, or alternative dispute resolution, techniques.
The term ‘alternative dispute resolution’ refers to the range of options that someone involved in a dispute can use to prevent the need to go to court to resolve your matter.
This can be incredibly effective for a range of different types of matters and, depending on the details of your particular arrangement, has a wide variety of options to choose from, such as adjudication, mediation, and others, that can be of benefit in different ways.
For example, mediation occurs when an impartial third party, referred to as a mediator, oversees a meeting between the two parties to ensure all conversations remain productive and civil.
This method is both cost and time effective and does not legally bind parties (unless you take action for it to do so), so it can fit your matter if these are some features that you are looking for!
What Legal Debt Collection Options Do I Have?
Now that you’ve tried all other routes, it’s time for your business to consider all of the legal options that it has.
Although legal action can be expensive and drawn out, it is sometimes the best option for your particular situation and should be at least considered.
The following options are some different legal routes that you may wish to try.
Legal Debt Collection - Letter of Demand
The first legal option that you may wish to use to collect your unpaid invoice is a letter of demand.
A letter of demand is a legal document that warns the debtor for the final time before you begin with routes such as litigation.
This may be a wake-up call for your client to pay their invoice finally or pay the consequences of non-compliance.
This can be incredibly effective as not only does it provide an incentive for debtors to pay their invoices but is generally much more cost-efficient and saves a lot of time!
You may wish to have a letter of command created by a lawyer to ensure it is legally sound and effective in reaching your debtor as it should.
Issue a Claim and Statement of Claim in Court
A claim is a legal document in Queensland that sets out the basis of a creditor's legal debt claim or dispute against another party.
It is a written document that summarises the facts and legal arguments in support of the individual's case.
The claim may ask the court for a particular remedy, such as compensation or an injunction, or it may ask for a declaration that the person's rights have been infringed.
Claims can be brought in various legal actions, such as court proceedings, administrative hearings (QCAT, NCAT, VCAT, for example).
The statement of claim must include a brief summary of the material facts on which the plaintiff relies, as well as the legal foundation for the claim.
It should also specify the plaintiff's requested remedies, which might include monetary damages, specific performance, or an injunction.
The statement of claim must be served on the defendant, who must subsequently reply within a certain time frame.
The answer is frequently in the form of a defence, which states the defendant's stance on the points addressed in the statement of claim.
Legal Debt Collection - Statutory Demand
A statutory demand is another route that you can engage in if you wish to try a legal option to get a debtor to pay their unpaid invoices. A statutory demand is a creature of the Corporations Act 2001, which states:
“Statutory demand means:
a document that is, or purports to be, a demand served under section 459E;
such a document as varied by an order under subsection 459H (4).”
A statutory demand is a formal request for your client to pay the debt/unpaid invoice discussed within the document.
This prevents businesses that are insolvent from continuing to trade or engage in the initiation of new debts or other financial matters.
Once an individual or business is served with a statutory demand, they will be allowed 21 days to pay the debt or to take action regarding having the statutory demand set aside.
If they do not do either of these things, they will face penalties.
Consider Debt Collection
Have you tried all of the routes of collecting an unpaid invoice from your client, both legal and not, with no sign of success?
Or are you simply looking for an easier way to collect these unpaid debts? If so, it may be time for you to consider debt collection.
Debt collectors are professionals in the industry of debt collection and can, therefore, collect your unpaid invoices with much more skill and success.
They can also use tactics such as skip tracing to locate your missing debtors and collect invoices from seemingly unreachable clients.
Try using a debt collection agency today; you will see a difference!
Legal Debt Collection - 4 Questions to Ask Yourself
Are you an individual or business that is considering taking legal debt collection action against another party?
If so, you are probably feeling the weight of the seriousness of this consideration and may be under some pressure to make a decision.
After all, debt recovery legal action is complicated and a lengthy process that you don’t have forever to begin! It is really important for you to take some things into account before beginning legal action as there are a lot of potential issues depending on your financial and otherwise situations.
This is why it is great to have some questions to ask yourself to understand a couple of the basic essentials about how legal debt collection action would look for you.
Is Legal Debt Collection Worth It?
The first question that you should be asking yourself when you are considering taking legal debt collection action against another party is if it will be worth your while to do so.
Legal action can take a lot of time, energy, effort, and money from you.
It can become a main thing in your life for its duration and can simply take a lot out of you and your ability to work, spend time with loved ones, and engage in fun activities.
Although this sounds like an all-around terrible thing, legal debt collection action can sometimes be a very important and necessary thing that can ensure that you get the justice you deserve.
However, unnecessary legal action will become very tedious very quickly, especially if you don’t really care about the result or it won’t affect you too much if you win.
This is why it is vital for you to get legal advice to assess if it is genuinely worth it for you to take legal debt collection action against this particular party.
This way, you can avoid the work and resources that legal action takes if it won’t be worth your while.
Do you Have the Resources for Legal Debt Collection?
Another key question that you should ask yourself before taking legal debt collection action is if you have the resources to engage in it.
As much as you may have found that debt collection legal action is a necessary step forward in your matter, you have to make sure that it is an actual viable option for you.
The first resource that you should consider is money.
Legal action is a very expensive task and, once you start it, it is much more difficult to back out than it would have been to simply not do it at all.
Consider if your income provides you with enough money to afford a lawyer as well as any court fees that you may be required to pay.
Not only this but consider if you will still be able to pay bills and pay for other essentials and have enough money left over to enjoy your life a little.
Another important resource that debt collection legal action will take a toll on is your time.
If your job takes up a lot of time already or you have a lot of other responsibilities that render you with practically no time to spare as it is, you may want to take a second to think if legal action is really a viable option for you.
Have you Collected your Evidence?
Another key element of legal debt collection action that you should make sure you have in your possession before beginning a claim is evidence.
As you are probably aware, evidence is key in any court matter.
We have all seen those cop shows where they are searching desperately for enough evidence to charge a criminal with an offence.
Or may a law show where they are denying that the police have enough evidence to charge their client?
Whatever you’ve seen, evidence is very much centralised in the media around criminal charges. However, evidence is still required in civil matters also!
No matter the nature of your case, you will be required to prove to the court that what you are saying is true in order to receive what you are looking for from the matter.
It is important that you make sure that you have or can access evidence to prove your point in court.
Have You Tried an Alternative to Debt Recovery Legal Action?
Another thing that you should consider before taking legal debt collection is if you have considered any alternatives to it beforehand.
As we have already discussed, debt collection legal action can be a very pricey and time-consuming task that can just take a lot out of your personal time.
Using an alternative dispute resolution, or ADR, technique can be a much better fit for you. Several types of ADR can fit you better depending on the details of your particular matter.
For example, mediation is one of the more popular methods. It involves hiring the help of a third party, or a mediator, to oversee a civil and productive conversation that can help the two parties come to a decision that works for both of them.
This is quite a casual alternative and is much less expensive and does not necessarily create a legally binding agreement unless the parties take further action for such to occur.
Legal Debt Collection - What Might You Lose?
Another consideration that you should make before debt recovery legal action is of what you could potentially lose from the ordeal.
Whether it be a good reputation or a lot of money, there is a risk when taking legal action.
However, the reward may be much better than the risk, so it may be necessary.
If there is too much of a chance that you will lose the matter or that you will leave with a damaged reputation regardless, maybe think twice about legal debt collection.
Legal Action for Debt Collection – 4 Essential Steps
Are you considering taking debt recovery legal action against an individual or business but don’t know how you can go about it?
If so, you are probably under quite a lot of pressure and are worried that you will make the wrong decision or that something will not go according to plan.
This can be a very stressful period for those considering debt recovery legal action.
The sheer number of unknowns can be very disorientating for people and can make the whole process a lot more challenging.
This is why it is best for you to have some simple steps or guidelines that you can follow if you are looking to take debt recovery legal action.
Having these steps can help you to know what to do and can direct your thoughts and financial planning about the matter.
Legal Debt Collection
This article will outline four (4) steps that you can take before commencing legal action in the Courts. This includes:
- Make contact before taking legal action.
- Make sure it’s the right choice.
- Try alternative dispute resolutions.
- Hire a debt recovery lawyer.
We will explain these in more detail below.
Make Contact before Legal Debt Collection
Before beginning to take legal action against another party, the first thing that you should do is reach out to them in some kind of way.
Contacting a person that you are looking to sue can help the process in a multitude of ways.
As we know, legal debt collection is generally a last resort and should only be used if you think there are no other ways to proceed or if you do not see this matter being resolved in any other way.
Preventing debt recovery legal action should be a key goal of yours and of your lawyers, so contacting the individual will generally be a great first step.
Several things can originate from contacting someone who you have a legal issue with.
The first is that they realise that the issue is more serious than they once thought and will resolve the issue (if it is resolvable of course) with you before you have to sue.
The second is that you proceed with the legal debt collection, but you do not necessarily lose the business or otherwise relationship that you may have with this party because you gave them a heads up.
There are, of course, several other ways that it can go and, if your situation does not suit contact, it may not be the step for you
Make Sure it’s the Right Choice for You
Another step that you should take before you take debt recovery legal action is to make sure that it is the right choice for you.
Legal action is a complex process that involves quite a lot of sacrifices. It is, therefore, important that you are sure that it is the right route for you before proceeding.
One element that you should consider is the costs and whether or not you will be able to afford them.
Taking debt recovery legal action involves several elements with higher costs that can add up and require you to spend a lot of money on it.
If you are already struggling with your finances or think that your money would be better spent elsewhere, maybe think twice.
Furthermore, if you think that you would be able to get by but only just, maybe reconsider as you must have enough money available to cover you if something goes wrong.
Another consideration that you should make if you are considering taking legal action is if you will have enough time to manage the matter while still continuing with your life outside.
If you are pressed for time managing your family or your job or whatever other responsibilities you have, debt recovery legal action may not be the best thing to place on your schedule!
This being said, legal debt collection may be essential sometimes and whether or not you can afford it or have the time for it may not be something that matters to you.
Legal costs are sometimes covered (in part) if you win your matter also, so keep that in mind.
Try Alternative Dispute Resolutions
Another step that you should take before taking debt recovery legal action against another party is alternative dispute resolution or ADR, techniques to have the matter resolved outside of court.
As we have already discussed in this article, legal debt collection is a big commitment and can take a lot out of a person.
Alternative dispute resolution, however, is a great way to resolve your matter (with outside help) without the high costs and time commitment that debt recovery legal action would require.
Some matters cannot be resolved on your own, we get that! But legal action isn’t the only way that you can have someone else to help with it.
You may wish to try the ADR method of mediation to help resolve your matter.
Mediation is the process of having a third party, or a mediator, oversee a discussion between two parties about their issue.
They will help to ensure that the conversation remains directed and productive and, most importantly, civil, and not aggressive.
There a plenty of other types of ADR that may work better or worse depending on the details of your particular matter.
Hire a Lawyer for Legal Debt Collection
As you begin to put the legal debt collection into motion, it will be wise for you to hire a lawyer to help to advise you through the matter.
A lawyer is a professional in all things law and has likely been involved in a matter similar to yours in the past.
Even if they haven’t had a matter quite like yours, they will have more than likely been involved in some sort of court action in the past.
This can mean that you have a guide through the process, you know your rights and responsibilities, and will, most importantly, have a professional represent you in court.
Having that representation can easily be the difference between winning and losing your trial
Below are 6 BONUS TIPS and proactive ways to cut legal fees while still getting what you need out of your matter!
Pursuing Legal Action - Be Organised
When pursuing legal action against a client, ensure you are adequately organised before speaking with a debt recovery lawyer.
Solicitors will generally charge an hourly rate and an organised system of evidence, questions, and information to present to them will likely decrease the time it takes for them to help you!
If you have large files of evidence or documents that will assist your case, it pays to have them sorted in a neat, labelled fashion that will allow your lawyer to locate appropriate information as needed.
When communicating with them, rather in person, over the phone, or via email, it may be helpful for you to prepare notes of any information you want to inform them of or any questions you have to avoid elongating conversations that may increase costs.
Request a Cost Estimate
As aforementioned, lawyers generally will charge an hourly rate so it may be difficult for them to give you a definitive answer on the price of their service.
Setting this aside, it may be wise for you to ask them for a general estimate on how much their total legal service will cost, once they are aware of the details of course, as they will likely be obligated to inform you of such.
This knowledge can value you in a multitude of ways and may allow you to make an informed decision on how you would like to proceed.
You may have a budget or wish to create one on how much you are willing to invest in this matter and if it will overall be worth your money and efforts to pursue legal action.
You may also wish to find the most cost-efficient lawyer available and having a general estimate on how much each service will cost can assist you in doing just that.
When looking to invest in a legal matter, knowledge is key, and it may be worth your while to find out as much information about your lawyer as possible!
Legal Debt Collection - Get Advice Early
It is a good idea to seek legal advice early in your matter and will likely save you some costs!
You may think it wise to attempt to collect debts on your own originally and, if all else fails, seek the assistance of a professional.
While a common mistake to make, this is generally not a productive method, unless, of course, you know what you are doing.
When in the early stages of debt recovery, don’t hesitate to seek professional advice whenever you find yourself questioning anything.
Although this may seem costly, it will generally save you significant money as a professional is equipped with all the tools, experience, and legal knowledge required to efficiently collect debts.
You may also make the mistake of violating a law on debt collection due to a simple lack of knowledge of the laws surrounding it, an error that can be avoided by enlisting the help of a pro.
Be Open About your Needs
When initiating communication with a lawyer, ensure you are fully clear with them on what you wish to achieve from their service.
Misunderstanding between yourself and your lawyer can result in your investment in their service being in vain and you ultimately not achieving the results you were seeking from the matter.
Make sure you inform them of all relevant details on the matter including your financial position and what you are willing to invest in the recovery process for the result you are seeking.
Remember to also let them know any relevant information you have on the opposing party, such as their finances and what they owe to you.
Legal Debt Collection - Try to Settle
Settling is the process of opposing parties coming to an agreement in an attempt to avoid the matter entering a court environment.
Settling may be really beneficial to you as a creditor for various reasons and even a recorded attempt to settle may also be of assistance.
Settling a matter is both a cost and time-efficient method of recovering debts and may ensure an, if slightly compromised, result that appeals to you in some ways.
You may also want to take into consideration if your matter is genuinely worth the costly ordeal of a trial.
Costs aside, if you wish to maintain a business relationship with the opposing party you may want to attempt to settle to show you are willing to compromise and create a healthy relationship between the parties.
Furthermore, if you can make evident to a courtroom that you attempted to settle with your debtor and they refused, the judge may be more likely to consider your case and reward you what you are owed, possibly in full!
Choose a Cost-Effective Lawyer
When searching for a lawyer for legal debt collection, avoid settling for the first you find and instead search the market a little!
Some firms will offer a free over-the-phone consultation for a set period, so don’t be afraid to use this to your advantage and receive some advice on your matter.
You may want to find a lawyer that offers the best value of service for an affordable price to get the best value for your money.
Finding the right lawyer for you is an important task, so don’t hesitate to spend a decent amount of time searching for what you’re looking for.
When looking for the right lawyer, you should take into consideration their experience in the field, expertise, reputation, and costs. Remember, it is unwise to simply settle for the most affordable lawyer on the market without considering the above factors first!
Key Takeaways - Pursuing Legal Action
Making that decision to take legal action against a debtor may be a truly stressful experience!
Taking that time to search for a legal representative that works for you can help to ease that stress.
As mentioned at multiple points throughout the article, underinvesting in legal assistance may lead to more money being spent down the line, or even you not receiving what you need out of the service.
As always, consider your needs and the details of your matter and use them to make an informed decision about who you want representing your case!
Legal Debt Collection FAQ
Navigating the complexities of legal debt collection can be overwhelming, whether you're an individual or a business.
We understand the gravity of such a decision, which is why we've compiled this FAQ section.
Below, you'll find answers to the most common questions people ask when considering legal action for debt recovery, informed by professional Australian debt collectors.
We hope this helps in guiding you through your decision-making process.
How do I take legal action to recover debt?
To take legal debt collection to recover debt, you will need to:
- Send a letter of demand to the debtor, notifying them of your intention to take legal action.
- If the debtor does not respond to the letter of demand or fails to make payment, you can file a claim in court.
- The court will then issue a summons to the debtor, requiring them to appear in court to answer your claim.
- If the debtor fails to appear in court, you may be awarded a default judgment.
- Once you have a judgment, you can take steps to enforce the judgment debt, such as garnishing the debtor's wages or seizing their property.
What is a debt recovery action?
A debt recovery action is a legal proceeding that is taken to recover a debt from a debtor. The action can be filed in court or in a tribunal, depending on the amount of the debt and the jurisdiction in which you live.
What is legal debt recovery?
Legal debt recovery is the process of using the law to recover a debt from a debtor. This can involve sending a letter of demand, filing a claim in court, and enforcing a judgment.
Can you ignore debt recovery?
It is not advisable to ignore debt recovery. If you ignore a debt recovery action, the creditor may be able to obtain a judgment against you. This means that they can garnish your wages or seize your property to satisfy the debt.
What is legal debt collection?
Legal debt collection refers to the process of taking legal steps to recover money owed to you by another individual or business.
How do I know if taking legal action for debt recovery is worth it?
It's essential to consider the time, energy, effort, and money that would be involved. If the outcome doesn't significantly impact you or if you're indifferent about the result, it may not be worth the effort. Consulting with a legal professional can help assess the viability of the action.
What resources will I need for debt recovery legal action?
You will need financial resources to afford a lawyer and any court fees. Additionally, legal debt collections can be time-consuming, so ensure you have the time to dedicate to the process.
How important is evidence in debt recovery legal debt collection?
Evidence is crucial. To succeed in court, you need to prove your claims. Make sure you have collected and organized all the relevant evidence to support your case.
Are there alternatives to debt recovery legal debt collection?
Yes, alternative dispute resolution (ADR) techniques, like mediation, can offer a less formal, often less costly, way to resolve disputes.
What could I potentially lose from legal debt collection?
Apart from monetary investments, there's a risk of damaging your reputation or losing the case altogether. Weigh the potential rewards against the risks.
What are some tips for reducing costs when pursuing legal debt collection?
- Stay organized to minimize lawyer consultation time.
- Request cost estimates beforehand.
- Seek legal advice early.
- Clearly communicate your needs and desired outcomes.
- Consider settling out of court.
- Choose a cost-effective lawyer.
Why is it beneficial to try and settle out of court?
Settling can be both time and cost-effective. It can also help in preserving business relationships and can strengthen your position if you show the court that you attempted to resolve the matter amicably.
How do I choose the right lawyer for my case?
Look for a lawyer based on their expertise, experience, reputation, and cost. Don't simply go for the cheapest; ensure they offer value and understand your needs.
Can I rely solely on online advice for my legal debt collection?
No. Online content is a general overview and cannot cater to the nuances of individual cases. Always consult a professional for your specific situation.
Advance debt collection is an Australia-wide commercial debt collection agency and credit and accounts receivable management. We can recovery your debts, conduct skip tracing, and manage your accounts receivable. We collect your debts for commission only. This means no collection, no commission. We are professional debt collectors with combined 20 years of experience to help you collect your debts. We are partnered with expert litigation lawyers with years of experience in debt recovery, enforcement, and insolvency. Under the Agents Financial Administration Act 2014 Advance Debt Collection Pty Ltd hold authority number 4583821 to act as a debt collector. ADC Advance Debt Collection® is a registered trademark.