What to do?

 

You have a client based in Australia who is failing to pay your invoice despite sending multiple reminders and phone calls pleading for payment. Chasing payment is stressful and time-consuming and is not yielding results. What can you do now?

Fortunately you are not the only person in Australia in this situation and there are a number of payment recovery mechanisms available to you such as filing your unpaid invoice dispute on the Business Disputes Register, seeking mediation, and taking the case to tribunal.

Each options has its pros and cons and each is detailed in this article.  Here is a summary:

 

 
File on the Business Disputes Register
Mediation
Debt collection agency
Small claims Tribunal
Cost
$19.95
$195 using a government tribunal. A private mediator is likely to cost over $1000
Up to 30% of amount
Minimum $95 if representing yourself. Expect to pay over $1000 if using lawyers
Pros
Fast
Economical
Works for non-Australian companies
Financially detrimental the other party
Good for resolving a complicated dispute without involving expensive lawyers
Allows you to move on
Get justice
May get a default judgement
Cons
May ruin client relationship
Expensive
Unlikely to get full payment
Expensive
Lose control of process
Risky: you might lose!
Time consuming
Expensive

 

 

Send reminders

If you client is late on paying your invoice then the first step before taking any serious action is to send at 2 or 3 reminders at several days intervals (week intervals are common practice). Each reminded should be more strongly worded. For example:

  • Friendly reminder:  “This is a polite reminder that we have an outstanding invoice which is now [x] days overdue. [give details of invoice: invoice number, date, amount].  I understand that this is probably due to an oversight and I would appreciate if you could settle this invoice as soon as possible. Please let me know when I can expect payment?”
  • Overdue notice: “We regret to inform you that our outstanding invoice is now [y] days overdue. We require immediate payment of this amount to avoid further action. Could you please let me know when we can expect payment? : 
  • Final notice: “We have sent several reminders regarding our unpaid invoice which is now over [z] days overdue. This matter has now reached a critical point and we require immediate payment of this amount to avoid further action. This is the final notice. Please contact me immediately to let me know when we can expect payment of this outstanding amount.”

 

If still unpaid then send a “Letter of demand” (using snail mail instead of email):

"I am writing in relation to the amount of $[amount 'including GST']. According to my records this was due to be paid by you on [date] and remains outstanding. We have made several requests for payment. These were:

  1. Polite reminder sent by email on [date]

  2. Overdue notice sent by email on [date]

  3. Final notice sent by email on [date]

The amount relates to [description of services] provided to you at your request, on [date].
Please find enclosed a dated copy of the invoice and note that it specifies [describe payment terms and instructions]. I have also enclosed the following documents:

  • [name of document]

  • [name of document]

[enclose any other relevant documents such as your contract, acceptance correspondence, relevant communications etc that support your claim for the amount owing].

Please be advised that I demand payment of the invoiced amount [plus an amount of ${amount} for late payment interest as agreed in our contract dated {date}] within seven days of the date of this letter. Payment should be made by [describe manner in which you would like to receive payment i.e. bank account for deposit or address for cheque to be posted]. If payment is not received within seven days of the date of this letter I reserve the right to take legal action to recover the monies without further notice to you."


File dispute on the Business Disputes Register

The simplest and most straightforward of all the options listed here. If you believe you are in the right and willing to make details of your dispute public then this is the best solution. Simply fill in the form giving details of your dispute with the other party. Your dispute is then automatically published on the internet on the disputes register for the general public to discover as a matter of public record. The other party receives an email notification about the dispute being filed on the Disputes Register and is urged to contact you to negotiate its removal. If the dispute subsequently reaches a satisfactory resolution then you have the option to remove it from the register - this is very important because it is what compels the other party to resolve your dispute. Not removing the dispute from the register could be very costly to the other party in lost business.

The dispute will appear on google searches of the accused's company name, often on the first page. This will have a detrimental impact on the other party's reputation which is why they will be inventivised to respond and resolve the dispute promptly.

 

Complain to an ombudsman

This option is not listed in the summary table above because it only applies to a few industries that have ombudsmen, commission, or other organisation that can help you resolve a dispute. More often they help with consumer protection so are not necessarily useful for debt repayment. Here is a list of the main organisations in Australia:

 


Mediation

If your dispute is not a simple matter of an unpaid invoice for services rendered, but has added complexities such a deviation from the original contract then Mediation might be a more appropriate form of dispute resolution where a mediator can help you and your client reach an agreement. The Mediator Standards Board publishes a list of accredited mediators: msb.org.au/msb-member-list

You can also try the online dispute resolution service provided by The Australian Small Business and Family Enterprise Ombudsman: www.asbfeo.gov.au/disputesupport
By definition, mediation implies negotiation which means you must be prepared to give some ground to your client such as a reduction in payment or a prolonged payment plan.

 

Debt Collection agency

If the friendly reminders and the letter of demand have yielded no results and mediation is deemed not suitable then engaging a debt collection service is an option. Debt collection agencies will try to recover the money owed to you for a fee typically 30%. Using a debt collection agency sends signal to your client that the situation is now very serios and the matter is now hand over to professionals. This will no doubt sour you relationship with your client but then you may have concluded that non-payment of your invoice has caused this to happen already. There are different types of debt recovery:
 

Traditional debt recovery

When appointing a traditional debt collection agency, they will send a 'letter of demand' to the debtor on its own official letterhead, demanding payment by a certain date and threatening legal action. This is often followed up with a second 'final' demand letter and sometimes a 'phone demand'. If this fails, you can instruct the agency to take legal action on your behalf. The fee depends on a number of factors such as location of debtor and amount claimed. Expect to be charged up to 30% of the value of the debt.
 

Debt purchasing or debt buying

It might be possible to sell the debt. You will only get a small percentage of the debt amount. The debt becomes the agency’s problem to collect and you will not be entitled to any of the money if recovered. This should only be considered if you have written off a debt and have other priorities to pursue.
 

Online debt recovery

For a fee, Online debt recovery is offered by a number of legal firms and debt collection services. You just fill in an online form giving details about the debt you want are owed (such as the client's business name, business address, amount of debt, date of invoice etc). The service then sends  a letter of demand on its own letter head to your client. This is a fast, simple and cheap solution that might be more successful that sending your own demand letter. However, the service will not include legal advice and you don’t have control on the wording which will most probably ruin the relationship with your client.


Small claims tribunal

If the reminders and the letter of demanded have not yielded payment, and mediation and debt agencies are not options, then you should seriously consider taking legal action.
Some states and territories have civil and administrative tribunals, which are similar to local or magistrates courts. Most courts and tribunals will encourage you and the hirer to try to reach an agreement yourselves. In the Federal Court, this can be a requirement.

You can lodge a claim with the Small Claims Tribunal depending on the amount of money in dispute,. Legal action for recovery of debts under $100,000 is usually started in the Local Court. If your dispute is about more than $10,000 it is best to get legal advice before starting any court proceedings.  Claims for more than $100,000 are started in the District Court and it is recommended that you get legal advice in this instance.
You will need to complete a Statement of Claim form and lodge it at a Local Court.  (for NSW you can get the forms here:www.ucprforms.justice.nsw.gov.au)

Disputes between tenants, landlords, traders and consumers can be started in the Consumer, Trader and Tenancy Tribunal (CTTT), a specialist tribunal that deals with disputes. Find out more from the CTTT website at Fair Trading New South Wales.

You should evaluate the risks involved before starting legal action. Court can be expensive in money and time. There is no guarantee that you will get your money, you could be further out of pocket if you lose as you will have to pay court fees. Make certain that the person or company you are taking to court is actually able to pay. There are further complications:

Debts outside your state – If the debtor resides or the debt occurred outside of your state, you will need legal advice on where to commence legal proceedings.

Time limits – The debt must not be more than 6 years old (there are some exceptions to this rule). 

Responsibility – You must be able to prove your claim if it is disputed otherwise you risk being ordered to pay the costs of the other party. It is your responsibility to pursue your claim for payment not the court’s.

Attendance:  You must attend court if and when requested.

 

After filing a claim in a court or civil and administrative tribunal, you and the client may be expected to participate in mediation or a pre-trial conference as part of the process and the court or tribunal will need to see evidence of this; so ensure you should have records of your efforts to resolve the problem (notes of conversations and copies of emails and letters). These documents will form part of your evidence in court.
How much will it cost?

The total cost of going to court will depend on:

  • which court you go to
  • complexity of the situation
  • fees charged by the court
  • whether lawyers are used
  • opportunity cost of preparing and attending court instead of focusing on your business
  • travel and accommodation costs to get to court or to meet with lawyers.

 

You can obtain more details at these websites:


Example of court fees (NSW)
 

Form or service for which the fee is payable
Standard fee
Application for Recovery of Money
$95
Summons to Produce (civil jurisdiction)
$104
Summons to Give Evidence (civil jurisdiction)
$104
Summons to Give Evidence and Produce (civil jurisdiction)
$104
Notice of Appearance
No fee
Affidavit of Service
No fee
Notice of Motion
No fee
Notice of Discontinuance
No fee