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What are your options when it comes to chasing a client for an unpaid invoice?

3 min read
30 October 2019

Key Takeaways

  • The four real options you have when a client owes you money.
  • While the initial cost of issuing a Statutory Demand may be inexpensive, there are risks to be wary of, including a costs blow out.
  • Consideration should be given to the continuing ongoing relationship with the person who owes you.

Regardless of a business’s size, there is no joy in reminding people they owe you money. So, why can’t we all just pay our invoices and get on with it? If only it were that simple.

Unfortunately, it seems to be an ever increasing trend in business that invoices remain unpaid due to dispute, inability to pay,  forgetfulness or even sharp business practice.  While it is relatively easy to remind a client who has just forgotten to pay an invoice, what do you do when they just won’t pay?

The good news is you always have a choice, subject to the size of the debt, the circumstances surrounding the fees and your relationship with the client.

So, what options do you have?

  1. Instruct us to write to the debtor outlining the debt and requesting payment. This is the least risky option and often leads to the debt being repaid.
  2. If the client is a company, why not instruct us to issue a Statutory Demand? Though this is the most appealing option, it is also where the risk starts to creep in which I will explain further below.
  3. Instruct us to start proceedings to recover the debt. This is an expensive and risky option that should only be considered as a last resort if option 1 doesn’t work and option 2 isn’t available.
  4. Let it go. This is the bitter pill to swallow and should usually only be done if option 1 or 2 don’t pay off. However, sometimes the cost of chasing that debt, both financially and for your business relationship, may outweigh the costs of recovery. In that circumstance, you may just need to walk away, talk to your accountant and hopefully write the debt off.

So, why is a Statutory Demand the preferred option?

If you issue a Statutory Demand and it is not dealt with by the debtor company within 21 days then that company is, as a matter of law, deemed insolvent.  You can then apply to the Supreme Court for that company to be wound up by a liquidator.  If the debtor wants to continue to operate then they can either pay the debt (usually the cheaper option) or prove to the Court that they are solvent (usually the much more expensive option).   

In order to issue a Statutory Demand the following criteria must be met:

  1. The debtor must be a company;
  2. The debt must be at least $2,000;
  3. The demand must be in the prescribed form; and
  4. There must be no genuine dispute as to the existence of the debt.

Criteria 4 is where the risk lies.

If you issue a Statutory Demand and the debtor claims that there is a genuine dispute, the debtor must file an application with the Supreme Court to have the Statutory Demand set aside. If the debtor can prove to the Court that a dispute as to the debt exists, then you may well be liable for their legal costs thrown away in the application which, given that it is a Supreme Court application, will be considerable.

A Statutory Demand though effective does come with associated risk. We strongly suggest to all clients that they speak to us first before taking any debt recovery action beyond their internal follow ups.

The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.

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