Debtor management is one of the most undesirable parts to owning a small business in Australia. You pour your heart and soul into working for a client, and then they dispute your invoice. It’s a great way to get emotional and upset, so it’s best to have a system or to outsource it completely.
Step 1 – Review your terms of trade
The most common mistake made by business owners is that they start a job without having the customer sign a terms of trade agreement. Debtor management becomes almost impossible if you haven’t got a written agreement, so step 1 should be to have terms drawn up either by a commercial litigator, or outsource any debt collection to Office Shed, and we’ll arrange some terms for you to adjust and work with.
Your terms should include.
1. When you expect payment, for most of you, this will be straight after the job. For Quoted works you may require a deposit and then progress payments.
2. Interest charges for late payments. If people know that there’s a penalty for late payment, then it’s less likely to happen. Debtor management becomes a lot easier.
3. A clause that states any assets created during the contracted work are under the ownership of you until payment has been received in full.
4. A term that allows you to seek compensation for debt collection costs and legal expenses.
Please note, the above should not be considered legal or financial advice. Please seek advice from an appropriate solicitor.
Debtor Management Process
Debtor management should follow a legal process. Australian law states that overdue account notices need to be issued in a sequence, with a fair amount of time for consideration.
First, send a friendly written notice that the account is overdue. This notice should outline the amount that is due and give some time for payment. It should display all invoices that are overdue, when they were issued, their due dates and be downloadable for the customer. Often, it’s a mere oversight because customers are missing invoices, and the overdue account can be resolved easily.
If the account remains unpaid after this initial notice, send a second notice stating that the debt may be referred to a debt collection agency if payment isn’t made within 7 days.
If payment still isn’t received after this second notice has been sent, send a ‘Final Notice’ stating that you will engage a debt collection agency or commence legal action within 7 days if the overdue amount isn’t settled prior.
It’s important to follow this process so as not to breach any laws whilst collecting debts from your customers. This also means that you can’t begin debt recovery without first sending the three overdue account notices. It can also be hard to do emotionally, so if you’d like to outsource debtor management, Office Shed have a team of professionals who get results without you having to lift a finger.
Office Shed has a system for handling overdue account notices. Every communication will be recorded, executed exactly to what’s required by law, and handled with professionalism, firmness, and fairness. It’s important to treat your customers well, in case their lack of payment is only temporary.
If a customer doesn’t respond to our overdue account notices, there are a few options for you to consider. The first is a debt collection agency who will act as a mediator on your behalf. They’ll send demand notices, which usually result in communication and disputes from your customers.
As part of debtor management, Office Shed collects all information to be used at a later stage if a dispute arises. The debtor (your customer) may also engage a lawyer. If a lawyer is engaged, jump online and look at the quality of their firm. Often people that don’t pay their bills hire substandard solicitors, which may give you confidence in choosing between the next steps if mediation and a settlement can’t be agreed upon.
If there’s no settlement, and you’re based in Queensland, then you need to choose between submitting the matter to QCAT or Magistrates.
What is QCAT?
QCAT is the Queensland Civil and Administrative Tribunal. It is a tribunal that deals with a wide range of civil matters, including disputes about tenancy agreements, neighbourhood disputes, guardianship and administration orders, and applications for review of administrative decisions made by state government agencies.
QCAT can hear disputes about money owed, contracts, property, tenancy, guardianship, and more.
To start a case in QCAT, you must fill out an application form and pay a fee. If you’ve been working already with a Debt Collector, they will manage the submission on your behalf. You will then be given a date for a hearing. At the hearing, both sides will have a chance to present their case and argue their point of view. The tribunal will then make a decision.
If you are unhappy with the decision made by QCAT, you can appeal to the District Court or the Supreme Court.
What is the Magistrates’ Court?
The Magistrate’s Court is the court that deals with most debt cases in Australia. If you’re owed money by a debtor, you may take them to court to try to get the money owed. The Magistrates’ Court can make orders that they pay the money owed, or that their property be sold to pay the debt.
Here are a few things the Magistrate’s Court can and cannot do.
The Magistrate’s Court can:
- – Make an order that the debtor pays you the money they owe.
- – Make an order that the debtor’s property be sold to pay the debt.
- – Make an order that the debtor goes to jail if they do not pay the debt.
- The Magistrate’s Court cannot:
- – Make an order that the debtor’s wages be garnished.
- – Make an order that the debtor’s bank account be frozen.
How To Choose
As part of debtor management, you’ll get advice on which path is most appropriate to take, but it’s best to also research it yourself.
1. QCAT is cheaper, however you cannot claim back as much of the legal costs as Magistrate’s Court.
2. At QCAT, if for any reason you lose the case, you cannot be made liable for the other parties’ costs.
3. With QCAT if the debtor files a response, there will be a mediation followed by a hearing in which you will need to attend via phone or in person and no lawyers are required.
4. If you choose the Magistrate’s Court and the other party files a defence, you will need lawyers to assist with this, which can cost anywhere upwards from $2000 AUD.
Fees For Lodging The Dispute.
The QCAT FEES are approximately $1200 inc GST and you can claim around $400 of this cost from the debtor.
The Magistrate’s Court will cost approximately $2700 inc GST. and your lawyers will claim around 50% of these costs from the debtor.
The Basic Process For QCAT
First, the claim needs to be drafted, filed, and served.
You’ll then wait 28 days to see if a response is filed.
If there’s no response, you will apply for a Default Decision.
Then the decision can be registered in the Magistrate’s Court, which will give you judgment and be recorded on debtors credit file for up to 12 years and accumulate interest on a daily basis.
From there, the process is the same as it is if you had gone to Magistrate’s Court in the first place.
The Basic Process For Magistrate’s Court
First, there’s an enforcement hearing in which you’ll bring debtor before the court to produce financials, tax returns, bank statements, etc. to determine what sort of order to request, e.g. Garnishee of bank account, Garnishee of wages, Payment Plan order, sale and seizure of goods.
It is hard to determine how the debtor will react once they received the papers from the Magistrate’s Court. Some people panic and pay straight away, others file a defence, others pay once judgment is sought or months down the track.
You have 12 years to pursue the matter once you have received judgment.
Summary To Debtor Management
Debtor management can get complicated quickly, so it’s best left to the professionals. It’s not only a great idea for maintaining your mental health, but also to make sure you don’t make errors that can cost you dearly down the track.
Office Shed can guide you for the first part of the process, and handle all of the negativity that you’ve been carrying on your shoulders to date. We can prepare all documentation for you and refer you to excellent collection agency’s and solicitors if need be.
Business should be fun, simple, and profitable. Leave these matters to us.