Newletter Articles
Leading up to Christmas and into the New Year, most businesses experience a downturn in business. This often leads to cash flow problems and a backlog of unpaid debts. In these instances, businesses pay their debts in order of their perceived priority, that is, those that are considered more important.
The challenge for a business is to make their outstanding debt a priority.
Often businesses send out reminder notices to their debtors, generally with limited success. Especially in times of financial hardship, your reminder notice will just be one of many that your debtor will receive.
One way to put pressure on your debtor to sit up and take notice of your debt, is to have us send a letter demanding payment. We have typically found that a demand coming from a lawyer will command greater priority and attention than a letter coming from you. In our experience, many debtors respond to this demand by either, making payment in full or contacting us to discuss a payment plan. Both of which will see you recovering your money.
A second option is to commence legal proceedings against the debtor by filing a Statement of Claim. This puts additional pressure on the debtor to deal with your outstanding debt immediately, that is, to give it priority. If the debtor does not make payment or file a Defence within 28 days, you can get judgment against them.
This judgment usually includes an order for the payment of some of your legal costs; the amount depending on the value of the claim. A judgment may affect the debtor’s ability to obtain future loans or credit facilities. This creates a further obstacle to their New Year cash flow problems.
A third option, available if the amount owed is more than $2,000, is to issue a Statutory Demand to the debtor (where it is a company only). This is a demand for payment within 21 days, failing which you can commence proceedings to wind up the debtor. This is a risk very few companies would be willing to take. A Statutory Demand can be used without first getting a judgment if there is no genuine dispute about the debt however, it is not recommended. Some of your legal costs can usually be recovered where wind up proceedings are brought, even if your application is unsuccessful.
You can see that each of these options exerts increasing pressure on the debtor to make payment. This pressure helps you achieve priority and gives you a greater chance of making it through the New Year’s downturn.
For further information, please contact:
Kara Cook– Solicitor
(02) 9545 7208
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