How to recover bad debt.
A healthy cash flow is important to all businesses, but it can only be adequately maintained if your debts are paid. We are often asked what a business can do when they have outstanding invoices.
Here are some debt recovery options that may be available to your business:
- Review the contract you have with the customer to determine:
- Your entitlements, for example, can you charge interest?
- What action you can take until payment is received, for example, can I suspend work or suspend the line of credit available to the customer?
- Whether the contract sets out a procedure that must be followed in the event of a dispute, for example mediation.
- Issue a demand for payment, this may include a statutory demand which is available where the debtor is a company and the amount owed is $2,000 or more.
- Commence court proceedings.
- Industry specific legislation may prescribe a recovery procedure, for example the Building and Construction Industry Security of Payment Act.
- Other legislation may provide you with other recovery options, for example the Personal Property Securities Act.
The best source of protecting your business from bad debts involves taking preventative steps which may include:
- Conducting thorough credit checks prior to opening a line of credit to a customer;
- Ensuring that you have a signed contract with your customer which should include your terms and conditions of trade;
- Regularly revisiting any standard terms and conditions you propose to issue to new customers to ensure they continue to reflect the operation of your business and comply with any changes to the law;
- Registering an interest on the PPSR to give your interests greater priority over unregistered creditors in the event your customer is wound up.
Should you require any advice on the recovery options best suited to your business, please contact our Debt Recovery and Commercial Litigation Team.