Debt Collection: How Do You Decide When to Issue Legal Proceedings?
Hi, my name is Adam Stewart, Debt Collection Expert and owner of Debt Recoveries Australia.
It is important to take debt collection action quickly. The more time you waste on repeating the process of chasing letters, emails and calls the less chance you stand of recovering payment. If your debtor has been unable to pay you, chances are they will be also be owing money to others, who will also be trying recovery action, so it is vital that you are first cab off the rank.
When you set your terms of payment and your customer has not paid by the due date, that late payment becomes debt, so you must immediately take action.
First attempt to negotiate with your debtor. Keep a record of all communication. Make a reasonable offer to settle the debt and ensure you document your actions.
Still not successful? You should use the following criteria to decide if you should issue proceedings:
Can you prove that you are owed money by the debtor? Do you have documentation of the debt such as an invoice, or witnesses who will back up your version of events? Do you have a signed contract or personal guarantee signed by the directors? if the debtor disputes the debt think very carefully about taking legal action because there is a risk, however small, that the court may agree with the debtor’s version.
Enforcing the judgment will take some time and even after this process, the debt may not be paid in full straight away but by in instalments. You need to take this into account. Can you wait for your money?
You will need to factor in the cost of legal action as apposed to a commission-based debt collection service. Some of these costs are usually recoverable from the opposing party if you win. Make sure you get a quote from your solicitor and perhaps even set a price ceiling.
4. Return on Investment (ROI)
What does ROI (Return on Investment) have to do with choosing to sue a customer who has stopped paying for product received? Everything! As mentioned, there are costs involved in taking legal action against a customer. In addition, the legal process is typically very slow, and the chances of collecting the debt owed goes down, the older the debt becomes. For these reasons, you should look at the ROI of legal action before you decide. You will need to consider the actual debt amount, the solicitor’s fees, chances of successful collection and court costs in the event the legal action fails. If the ROI is large enough to make legal action against your debtor then go ahead.
Do you wish to preserve the relationship with the debtor? If it’s a long-standing customer and a significant portion of your income, do you want to find another way to negotiate to get the debt paid? Can you afford to lose this customer if they decide not to use your services again? Now is the time to look at the big picture. Consider the repercussions. Legal action may result in negative publicity if your customer decides to go to social media to vent or even to news sources to complain about your company.
A letter from a solicitor is often enough to prompt a debtor to take action, especially if they are threatened with court proceedings. Consider perhaps a debt collection agency that provides free legal letters of demand as part of their service.
Debt Recoveries Australia is the expert at recovering your outstanding debt without the drama. For more information, email at us firstname.lastname@example.org or call 1300 799 511. Talk to us about your debt collection concerns via Skype at debtrecoveries.