July 2005

Outstanding accounts can present a major problem for small businesses. Fortunately, solicitors can employ some effective measures to encourage, if not force, customers to pay their debts.

Before commencing court proceedings, the usual practice is to send a 'Letter of Demand' to the debtor.  This letter specifies the amount outstanding and the basis of the claim.  It usually indicates that unless the debt is paid within a specified time frame, court proceedings will be commenced. 

This action alone often results in payment of the debt or arrangements being made for payment.  When there is no response, proceedings can be instituted. 

For amounts less than $7500, a 'Minor Debt Claim' can be filed in the Magistrates Court.  The benefit of this course of action is that the procedure is relatively simple, and the Courts decision is final, in that there is no opportunity for an appeal. 

For debts exceeding $7500, Court proceedings are commenced with a Statement of Claim.  It is best to make what is known as a 'liquidated claim' (a claim for a   known/definite amount) wherever possible.  The benefit of this is that if the debtor does not file a defence, a default judgment can be entered.  Some costs of enforcement and interest are also recoverable as part of the Courts order. 

If payment is not forthcoming after judgment, the creditor can decide which means of enforcement action to take. Examples include Court applications to take possession of the debtors property for later sale, and/or garnishment of wages, and/or monies owed to the debtor. 

Hopefully this information will help you decide how and for how long to pursue debtors, be it on monetary or moral grounds.

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