How do I get someone to pay me?
DEBT RECOVERY PROCESSES – QUEENSLAND
(DEBTS UNDER $25,000)
Any business owner knows that cashflow is integral to the successful running of your business.
Cashflow allows a small business to purchase inventory, pay employees and expenses and improve the business itself.
Very simply, a small business can’t stay open if there is no cash for inventory, and if there’s no inventory, then there’s nothing to sell and therefore no business.
So what to do when people owe you money?
As the old adage goes, the best defence is a good offence.
To reduce the possibility of bad debtors in your business, it is recommended that you:
1. Perform a thorough background check on a business (or individual) before offering credit;
2. Set safe customer credit limits;
3. Only release goods when payment has cleared;
4. Wait for direct deposit payments to clear before shipping any goods;
5. Send invoices out as soon as a job is complete, or otherwise on a regular basis;
6. Clearly state all payment options and information on your invoices or contracts to make it easier for people to pay you;
7. Keep regular contact with your customers;
8. Cease providing goods or services in the event that an earlier bill goes unpaid;
9. If possible, attempt to obtain a deposit for the goods or services, or otherwise payment up front;
10. If you are a supplier, register and conduct property searches on the Personal Property Security Register (“PPSR”) to recover goods that haven’t been paid for.
It’s also good practice to outline, at the beginning of the customer relationship, your expected terms of trade and payment.
However, even with the best of intentions and practices, bad debtors are sometimes unavoidable.
Often, if the amount is for less than $2,000, a business generally considers whether or not to write the debt off. This is because the perception is often that debt recovery proceedings will be more costly than the debt itself.
When considering whether or not to commence a debt recovery action you should always consider:
1. Whether the debtor can pay. If the debtor has a number of creditors seeking payment of debts and may be insolvent (i.e. unable to pay their debts as and when they fall due), it may not be worth pursuing legal action. This is because while you may succeed in Court, you may not be able to recover the debt;
2. Whether there is a genuine dispute over the facts and the strength of your claim having regard to the evidence available. If your claim is unsuccessful and the other party is legally represented at Court, you may be ordered to pay the other party’s costs;
3. The commercial advantage and disadvantage of reaching a settlement of the dispute out of court;
4. The appropriate jurisdiction to bring debt recovery proceedings and whether there are any limitation periods which arise. Generally speaking, the statute of limitations applicable to actions for debt recovery is 6 years from the date the debt first arose. However, this may change, depending on the type of debt, the circumstances in which the debt arose, and the application of any other applicable legislation. It’s always recommended that you speak to a lawyer in respect of limitation periods.
However, all States and Territories in Australia have a Small Claims Tribunal or Small Claims Division of their local Court that provides a simplified debt recovery procedure. Queensland has the Queensland Civil and Administrative Tribunal (“QCAT”) which hears minor debt claims for amounts up to $25,000.
Steps for Recovery
When chasing payment for goods or services, the first step is generally to send a letter of demand to the other party telling them of the dispute and the money outstanding, and giving them a defined period in which to settle the matter or else face legal action.
However, when sending a letter of demand, you should be careful not to:
• harass the debtor, as they have a right to complain about this behaviour to particular Government agencies and the police;
• send a letter which is designed to look like a court judgement or order (because this is illegal).
Generally, it is worth seeking assistance from a solicitor to write a letter of demand to ensure that it is effective and sets out the nature of your complaint and the relief sought.
If the debtor fails to respond to the letter of demand, pay the full amount owing, or negotiate a compromise with you, you may consider making a claim in QCAT.
If you elect to commence debt recovery proceedings, a claim in QCAT can be brought against a person, a group of people, or a corporate entity.
QCAT’s jurisdiction for minor debt proceedings extends to debt disputes (up to the value of $25,000) including paid invoices of account; rent arrears (other than arrears for rent for a residential tenancy); work done and/or goods supplied; money lent and not repaid; wages owing; and IOUs.
To bring an action in QCAT for a minor debt dispute you need to complete and file an Application for Minor Civil Dispute – Minor Debt.
There is an application fee payable on the filing of the application, which is dependent on the amount of your claim. Always check with the Registry in respect of the filing fee.
If the respondent in your claim is an individual, they must be personally served with the Application. If the respondent is a company, service is effected by posting the Application to the registered address of the company. A company search will reveal the registered address.
After the application has been filed and served, the parties will be ordered by the Tribunal to attend mediation to attempt to resolve the matter. If the matter is not resolved at mediation, you will be allocated a hearing date. Generally, the time for commencing proceedings, participating in mediation and the matter being heard by the Tribunal may take between 6 to 8 months.
Because of the relatively low amounts claimable in QCAT, parties are generally self-represented and leave of the Tribunal must be granted for a lawyer to represent you. For that reasons, debt recovery proceedings are less formal than a traditional court and each side is given an opportunity to tell their side of the story. There is also a general presumption that each party pays their own costs.
In the event that an order is made by the Tribunal, if the other party still does not pay, you are entitled to enforce the judgement in the Magistrates Court, through ordinary enforcement processes including applying for an enforcement hearing, or an enforcement warrant for the seizure and sale of property, the garnishing of wages, or other such appropriate remedy.
While a solicitor may not represent you at the hearing in QCAT without leave of the Tribunal, we are able to assist you in preparing letters of demand, your application to QCAT, effecting service and drafting submissions for use at the hearing to maximise your prospects of success.
Debts above $25,000
Debt Recovery proceedings for amounts above $25,000 must be commenced in a higher court. Depending on the amount involved, this means the Magistrates Court (for amounts up to $150,000); District Court (for amounts between $150,001 and $750,000); or the Supreme Court (for amounts above $750,001).
In those circumstances, proceedings are usually commenced by way of claim or statement of claim. The processes are more extensive and formal. Accordingly, legal representation and advice is strongly recommended for any matters before those Courts.
Accordingly, if you would like any assistance in recovering a bad debt, contact our litigation team on 5440 4800.