What you Should do When Someone Won’t Pay?

The Problem

Sometimes clients just don’t pay their bills.

There are times where it doesn’t seem to matter how many times you remind the debtor or
how much time you invest in chasing up the outstanding debt, there are always some clients who just don’t or won’t pay their bills.

Clients who don’t pay can be a real problem especially for many small businesses. Instead of a business spending time marketing their products or growing the business they are instead forced to spend their time chasing clients for existing debts that should have been paid long ago.

Clients who don’t pay their bills can also cause reputational damage to a business. If a
company develops a reputation being unable enforce its debts then it can do long term
reputational damage to the business. In addition many other current clients might start to be more relaxed about paying their bills.

Finally, clients not paying their bills can also adversely affect the short term cash flow of a
business making it difficult for a business to cover their operating costs.

The Solution

The best solution to debtors who won’t pay is to threaten to take the debtor to court.

Very often just the threat of court action is will often be enough to cause a debtor to pay an unpaid bill.

While many small businesses prefer to threaten legal action over a unpaid debt, in our
experience it is best when this threat comes from a lawyer as it shows that the person
collecting the debt means business. Getting a lawyer to send a letter to a client demanding
that they pay an unpaid bill can often be quick, cheap and effective way on getting clients to pay the bills on time.

However, if this doesn’t work then you need to move onto the next steps:

1. The Statement of Claim

The first step in attempting to recover an outstanding debt of less than $20,000.00
from a debtor is to file a “Statement of Claim” with a local court.

This “statement of claim” basically outlines what the debt is for, when it was due and
who it was owed by.

In addition, to the statement of claim the debtor needs to pay a filing fee. The fee
will vary depending upon whether the person to whom the debt is owed is a company
or an individual.

More information about statements of claim can be found here.

2. Serving the Statement of Claim

Once you have filed the Statement of Claim with the court it needs to be served on the
other party.

There are a number of different people who can serve the statement of claim.

  • You can serve the statement of claim yourself.

  • You can ask someone to serve the statement of claim for you.

  • You can ask the Local Court to post it to the defendant.

  • You can pay for a private process server to serve it for you.

The Local Court will charge you a fee of $43.00 (as at July 2018) per defendant for
each address that it is posted to.

After this you will need to confirm the date of service, complete an “Affidavit of
Service” and file this with the court. This tells the court that you have served the
statement of claim.

For more information about this see here.

3. Waiting for a Response

After you have served a statement of claim, the debtor has twenty-eight days to:

  • repay the debt;

  • apply to the court to have the debt paid by installments;

  • file a defence;

  • send a letter asking for further and better particulars;

  • try to negotiate with you; or

  • do nothing.

4. Obtaining Judgement

In the event that the debtor does nothing within twenty-eight days you can then make
an application for a “default judgment” against the debtor.

It is very rare for a person who owes an unpaid debt to file a defence. Also if they file
a defence without any real justification as to why they haven’t paid then they can be
liable to pay your legal costs.

For more information about this see here.

5. Enforcement

After you have obtained judgement from the court you will need to apply to have the
judgment enforced. There are a variety of ways in which a judgment can be enforced.
This can include obtaining a garnishee order where money is automatically deducted
from a person’s bank account, their wages and the debt is more than $5,000.00 then
you can even get the person declared bankrupt.You have twelve years to enforce a judgment that you take out against someone.

For more information about Enforcement see here.

How much does it cost?

The cost for recovering money from a debtor will vary depending upon how much work is
needed and what type of debt you are attempting to recover.A letter from a lawyer asking someone to pay a debt a debt can be as little as a few hundred dollars. In addition, often the court will make an order that the other party has to pay your legal fees if they don’t have a good reason for not paying the debt.The best way to find out more information about costs is to give us a call on (02) 9982 1655 or visit our Northern Beaches office located on Fisher Rd, Dee Why.We can provide you with a detailed quote once we better understand your case.

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Yours Sincerely,

The Team,
O’Brien Connors & Kennett Solicitors