Debt Recovery Problem? Here are 4 Ways To Fix It
Debt Recovery Problem? Here are 4 Ways To Fix It
Want your business’ cash flow problem to improve? Here are some approaches to debt recovery.
As a business, debts at one stage or another turn into a regular problem. Depending on the industry or revenue it might not seem necessary to begin with the debt recovery process. However being aware of it can prevent hardship in the future.
1. Debt Recovery Procedures & Policies
The first step is to have a streamlined accounts department. This means clearly defined policies of what is to take place when an account is overdue. Practical steps include using contracts as often as possible, clearly displaying terms of credit and deadlines, consistency in accounts receivable, and having a procedure. This illustrates the integrity of the business and also prevents panic ensuing when an account becomes an account receivable.
2. Letter of Demand
A letter of demand is a cheap and effective method for recovering unpaid invoices. The letter is written in such a way that if the recipient does not comply with the request, generally within a specified time frame, then the matter will be escalated. The benefit of a letter of demand is that it forms part of a party’s evidence if they progress the matter further. The party may also wish to carry out searches to ascertain if the debtor has capacity to pay the unpaid invoice.
3. Debt Recovery in the Local Court
Where the amount claim does not exceed $20,000 a party may commence proceedings in the small claims division of the local court. Where the amount claimed is above $20,000 but below $100,000 a party may commence proceedings in the general division of the local court. The local court’s purpose is to achieve the just, quick, and cheap resolution of the matter. There are times where the debtor seeks to settle the claim before the matter progresses further. Should the matter proceed and the party obtains judgment, it will then be necessary to enforce the judgment so as to recover the outstanding amount.
Enforcing A Judgment
The following are common recovery methods when seeking to enforce a judgment.
- Examination order– this is an order that the judgment debtor must come to Court to answer questions and show documents about their financial position;
- Writ to seize property – upon making an application and paying a prescribed fee, the Court prepares a writ and forwards it to the Sheriff’s office nearest to the judgment debtor’s address. The writ empowers the Sheriff’s Officer to seize and sell any goods or chattels belonging to the debtor other than ordinary tools of trade, bedroom and kitchen furniture. The writ remains current and enforceable for 12 months from the date of issue
- Garnishee order –these orders specify an organisation (i.e. a bank or employer) that owes money to a debtor to pay it directly to a creditor; and
- Writ for the levy of property – directs the Sheriff to seize and sell the property of the judgment debtor in order to satisfy the judgment debt.
4. Bankruptcy
In serious cases or where the above actions have been unsuccessful, a party may apply to have the debtor declared bankrupt. By exercising this option the party may well destroy any business relationships formed. A bankruptcy notice is served on the debtor who then has 21 days from the date of service to pay. If the debtor fails to comply with the bankruptcy notice, they are deemed to have committed an act of bankruptcy. The party is then is able to commence bankruptcy proceedings in the Federal Circuit Court. The debtor may wish to negotiate a settlement with the petitioning creditor to avoid bankruptcy.
