Debt Recovery Or Collection For Small Business

admin March 23, 2023
Updated 2023/03/23 at 7:12 AM

Debt collection is a hassle. If you own a small business, you’ll be busy running and scaling the business. Dealing with small debt recovery for different invoices on top can be a troublesome task. Not only will it consume time but your patience and money.

Plus, waiting for the debtors to repay isn’t an option, as their debt will only pile up while you wait. If things come down to a point where your debtor files for bankruptcy, you’ll be left with nothing to collect.

In such cases, hiring a debt recovery lawyer is considered the best way to eliminate the hassle of debt recovery for your small business. Given the importance of debt recovery, you must streamline a process to deal with non-payment.

You can either do it yourself or seek assistance from one of the best debt recovery lawyers in Perth. Check this guide to learn the entire legal procedure for debt collection for small business owners.

Contact Your Customer/Client

You must connect with your client or customer right after their invoice is overdue. See if their reason for delaying the payment is justified or not. Give them a revised deadline to make the payment.

Send a Demand Letter

If they still fail to pay, send them a letter of demand. The letter must contain details like the overdue debt amount, the deadline within which they should pay and the necessary action you will take in the event of repayment failure.

Keep a duplicate of that letter and send the original via registered post. Sending the letter via post will serve the purpose of evidence in court. You can either prepare the letter of demand yourself or seek the assistance of a debt recovery lawyer in Perth.

Hire a Debt Recovery Lawyer

The best debt recovery lawyers Perth will act on your behalf to take all the necessary legal steps to collect debts from your clients or customers. In exchange, they will charge a legal fee.

However, before starting legal proceedings, you should know that things can get expensive and complex. Well, the lawyer takes care of the complex part, but the expense part will be your headache. Ask your lawyer about the associated court and legal costs and your chances of debt recovery.

In Perth, WA, the type of court to handle your disputes depends on the amount of debt. For instance,

  • The Magistrates Court deals with general claims for damages or debt up to $75,000 and minor claims for damages or debt up to $10,000.
  • District Court deals with damages or debt up to $750,000.
  • Supreme Court that deals with damages or debt above $750,000.

Lawyers provide legal services for debt recovery for small business owners in many ways. For starters, they file a statement of claim in court. As mentioned, the debt amount or size determines the court to file the claim.

The certainty of the speed and cost of the legal proceedings are considerably less and depend on whether or not the debtor chooses to defend the claim. If the debtor doesn’t file a defence, the court makes a judgement in favour of the creditor (you) by default.

You get granted a judgement debt if all your legal proceedings go successful.

Imposition of a Judgement Debt

If the debtor violates the judgement debt, you must ask your lawyer to go for any of the best enforcement or imposition options. The various types of enforcement options are as follows:

  • Garnishee Order: This order allows third-party debt recovery for small business owners. It enables you to recover the debt from the debtor’s employer, bank, and individuals who owe money to the debtor.
  • Writ of Execution: A writ of execution, also known as a writ for the levy of property, is issued against the property the debtor owns. The writ authorises the Sheriff to seize and auction the debtor’s property for judgement debt recovery.
  • Writ For Property Possession: This writ is issued to enable the Sheriff to sell the real property (both land and house) to repay the debt to the creditor. However, such a writ is only issued when no alternative means can recover the debt from the debtor.
  • Bankruptcy: Typically, creditors can request a bankruptcy notice as a last option if the debtor is liable to pay them more than $5,000. After receiving the notification, the debtor has 21 days to react before the creditor can initiate legal action. After proceedings, the Court may issue a sequestration order, declaring the debtor bankrupt and transferring custody of the debtor’s assets to a trustee. The trustee subsequently distributes the assets to creditors according to their priority.

Choose The Ideal Enforcement/Imposition Option

You need to make some considerations before choosing any enforcement option. First, you must assess the debtor’s financial condition to determine how to proceed.

  • Examination Notice: This notice asks the debtor to submit information on their assets, income, and liabilities to enable you (the creditor) to determine the enforcement option. For instance, the notice can provide the debtor’s bank details to you, over which you can issue a garnishee order.
  • Examination Order: If the debtor fails to adhere to the examination notice where the deadline period was a minimum of 28 days, you can ask the lawyer to apply for an examination order. After this, the debtor must visit the court and explain their monetary position.

Debt Recovery Where The Debtor Is a Company/Organization

Creditor’s Statutory Demand: Issued under the Companies Act 2001 Section 459E, this letter of demand is a debt recovery alternative available only when the debtor is a company and the debt is for more than $2000. An affidavit or a judgement debt can support it.

The debtor company has 21 days to act before being assumed insolvent. In turn, the liquidator distributes the company’s assets among creditors in accordance with their priority after the creditor files for the company to be wound up.

Due to the global impact of Covid-19, statutory claims issued on or after March 25, 2020, must be accompanied by a $20,000 debt along with a six-month compliance term before the debtor corporation is deemed insolvent.

Debt Protection Extensions To Know About (Temporary Due To Covid-19)

Since March 25, 2020, debtors have been allowed to apply for temporary debt protection (TDP), which now lasts for six months as opposed to the previous period of 21 days, along with adjustments to response times and debt levels for bankruptcy notices and statutory requests, respectively.

TDP stops unsecured debts from being collected, even with the aid of a garnishee order or writ of execution. These Covid-19 regulations are currently uplifted. The article mentions this section for reference purposes of creditors who couldn’t recover the debt during this period.

Final Words

At some point, almost all businesses will need to collect the debt, and in most situations, the initial stages will encourage payment without requiring legal action. Direct communication and mediation are excellent because they are less expensive, take less time, and are more likely to preserve the company connection. But, a lawyer can help start legal actions and collect on a judgement debt. So, get in touch with the best debt recovery legal service provider – Civil Lawyers Perth and simplify the hassle of debt recovery.

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