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6 Key Ingredients to Successfully Collecting Your Debt
From overdue accounts to aged debtors, and from aged debtors to bad debts. It is a common and repeating problem amongst all businesses. It can be very frustrating indeed.
Here are the key ingredients to improve your chance of successfully collecting a debt.
1. Effectively Communicate with Your Debtor
Make sure the debtor is aware of the outstanding account or the debt. He or she may not have received your accounts.
Best way to communicate is to put your intention in writing and followed by a phone call to make sure the debtor has received your letter.
2. Valid Legal Basis For Payment
There must be a valid legal reason for you to collect your debt. You need to have an entitlement to be paid. For example, a contractual right or an agreement that entitles you to claim payment.
Identify your rights and state it clearly – for example, describe the agreement, date of the agreement, terms of the agreement that the debtor is supposed to pay, particulars of your invoices, the date payment was due, and the fact that payment has remained outstanding.
Also remember to reserve these rights that you have identified.
3. Compelling reasons for debtor to do something NOW
You need to make it compelling for the debtor to pay you, or at least respond to you and resolve the issue. Some of the methods to compel a debtor to respond:
· Your intention to hand over the matter to your lawyer
· Your intention to commence legal action
· You will hold the debtor responsible for additional costs incurred due to his or her non-compliance to your demand
· Generally, a legal demand from a law firm has more weight because it conveys a firm message to the debtor that you are serious about the non-payment issue and the debtor should act quickly.
· You may even attach a draft Summons of the Court. It strengthens your message to the debtor that you are getting very serious and you will not entertain any bad excuses.
It is important that you are exercising your legal rights in demanding payment, and not “threatening” for payment. Threats and extortion are prohibited and illegal.
4. Set Time Limit
You should set a reasonable time frame for the debtor to reply to you. Generally, 7 days to 14 days would be adequate. By setting a time limit, it gives the debtor a sense of urgency to act on it immediately.
If you have a contract, you need to be aware of any terms of the contract that may have prescribed the steps and procedures you have to take in the event of a default.
You should diarise the time limit you have stipulated for the debtor to reply. Thereafter, you may need to consider taking the next step – passing it to your lawyer for further legal action.
5. Does the debtor have a valid reason to refuse?
Are you aware of any possible legal reason the debtor is refusing to pay you? Some of the common reasons include:
· It was not agreed. For example, variation or changes to the original agreement not recorded in writing.
· Negligent on your part or failing to meet the minimum standard of care.
· What was delivered did not match what they expected. For example, poor quality, does not correspond to description, poor workmanship, etc.
You may already know what reason it may be that the debtor is refusing to pay. Be prepared for it.
6. Be Prepared to Negotiate
If you get a response from the debtor to your legal demand, be prepared to negotiate. Getting something is better than nothing. You want to encourage that they respond to you and be upfront, as opposed to completely ignoring you.
You may be able to resolve it by offering a discount if the debtor pays within certain time frame, enter into a payment plan, or “make-good” whatever the debtor may not be happy about. It is a chance to strengthen your relationship with your customer!
About the Writer
Kelvin Tang
Kelvin has over 14 years’ experience practising law in Western Australia. He is the founder and Principal Partner of Tang Law based in Perth, Western Australia. Kelvin is a Registered Migration Agent (MARN: 1386452) and has extensive experience in providing service on Commercial Law, Dispute Resolution & Litigation, Family Law, Wills & Estate Planning and Settlements.
About the Writer
Kelvin Tang
Kelvin has over 14 years’ experience practising law in Western Australia. He is the founder and Principal Partner of Tang Law based in Perth, Western Australia. Kelvin is a Registered Migration Agent (MARN: 1386452) and has extensive experience in providing service on Commercial Law, Dispute Resolution & Litigation, Family Law, Wills & Estate Planning and Settlements.