What is process of debt recovery
May 3, 2022

What is the process of debt recovery?

Read our step by step guide

Do you have customers who are in debt to you?

It can be an uncomfortable situation when customers ignore your reminders to pay.

You can put in your best effort via email, phone, or post, and still – silence.

This article outlines some options to help you avoid attracting non-paying customers, and what to do if you’ve already got them.

But first, what is commercial debt collection?

The best option is to avoid debt in the first place

Even if you already have customers indebted to you financially, you can still put practices in place to avoid and discourage further debt accumulation.

New customers should be encouraged to pay their bills on time, and there are several ways you can facilitate this as a merchant.

For example, you could:

  • Perform background checks on new customers to assess their ability to pay
  • Fulfill orders for goods or services after customers have paid invoices
  • Make sure your payment options are clear and easy to follow
  • Invoice customers promptly
  • Provide discounts for early paying customers
  • Limit the amount of credit a customer receives with your business

All of these tactics are simple and easy to implement in your business, and they can make a real difference in terms of the quality of customers you accept and the expectations you have when it comes to their payment.

When these expectations are clearly communicated, it leaves little wiggle room or opportunity to claim ignorance of your payment terms.

The first step is to contact the customer

Before you contact the customer, you may wish to seek legal advice from a commercial lawyer, as the history of contact you have with the customer could be relevant should legal action be necessary.

The main thing is to keep detailed records of any phone conversations, emails, or letters that pass between you and the customer.

You will need to make a demand for payment, and in the course of getting a response from the customer, you may need to contact them by a variety of means – phone, email, post, or even in person.

It’s important to always remain polite and cool-headed during these interactions, as aggression is unprofessional and won’t help you obtain your goal.

Descriptions of aggressive behaviour could also work against you should the matter go to court.

You may have set down extended time limits for payment from your customer, and their response to this might dictate your next move.

There are agencies dedicated to commercial debt collection that will take a percentage cut of the outstanding debt if they are successful in retrieving the money.

Another option is to call a commercial lawyer and seek a professional opinion on your circumstances.

Commercial debt collection via a lawyer

There is a set process for debt collection via a commercial lawyer. It can be encapsulated in the following four steps.

1. Send a Letter of Demand

A Letter of Demand is the final opportunity for your customer to pay you before legal proceedings occur.

There is usually a 7-day window in which payment will be accepted and the matter resolved.

After that, a legal process will be set in motion.

Sometimes if a customer receives a Letter of Demand from a commercial lawyer using an official letterhead, it can be enough to politely scare them into paying.

At any rate, commercial debt collection legal proceedings begin at this point.

The Letter of Demand signals your intention.

2. Lodge a Statement of Claim

Your commercial lawyer will lodge a statement of claim on your behalf, which outlines details of the debt, proof of your claim, and your reason for taking legal action.

The Statement of Claim enters the matter into the legal system officially, with the intention of a scheduled hearing.

The defendant will have the Statement of Claim served to them, usually with 28 days to respond, though this may vary depending on your state of residence.

If your customer decides to pay up at this stage, they can ask you to revoke your Statement of Claim so that you can both avoid court.

However, if they refuse to pay or fail to respond, the case will go to court.

3. Get a Judgement

If the case proceeds to court, you must provide all documents that back up your claims.

The court may also subpoena certain records from phone or bank accounts.

A preliminary trial will take place, where you will have the opportunity to partake in mediation with your customer, legal counsel, and an unbiased facilitator.

It is in everyone’s interest to resolve the matter through mediation as court cases are costly and time-consuming, sometimes taking up to a year for a judgement.

If the mediation fails, the matter will proceed to a trial, each party will need to provide evidence, and a judgement will be delivered after all evidence is considered.

4. Enforcement

If the court rules in your favour, the customer will have to pay the outstanding amount owed to you.

However, if they ignore the ruling, it is your and your commercial lawyer’s responsibility to enforce the verdict from the court.

You have 12 years from the date of the judgement to do this.

But why wait so long?

Why not get your commercial lawyer from P&B Law onto the issue and resolve your commercial debt collection today?

Get help with commercial debt collection from P&B Law

Whether you are a business owner with payment owed to you or whether you are the one in commercial debt, we can help you navigate the process of commercial debt collection.

Trust our experienced commercial lawyer professionals to provide the crucial guidance you need throughout the journey to recoup your money.

Contact us today to get started.