when is it appropriate to take legal action?

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when is it appropriate to take legal action?

When is it appropriate to take legal action? Depends on many factors. I was asked this in reply to a recent post in this blog – “How To Ask For An Account Payment“. The normal answer, of course, is avoid taking legal action until you absolutely have to. Suing a slow paying debtor is normally very costly.

First things first.
Do everything you possibly can BEFORE having to go to this extreme. Start Everything Early – send your invoices out as soon as possible and follow up any that haven’t paid within your trading terms promptly. This is a simple system to follow.

 

If that doesn’t work, try and phone them. Check out Telephone Skills for some help with the what, when and how to do this. (Note: If they’re regular “slow payers”, chase them up by email before the payment’s due!) Writing is always less confrontational.

What now?
If they still haven’t paid or made an arrangement to pay with you, don’t waste time phoning again and again, it just makes your position weaker. Options available now
Still no success?
  • * Threaten to damage their credit rating
  • * Order a Lawyers Letter of Demand. Get a quote from a firm first, give them the details. This’ll show the debtor that you really mean business.
All of the above sounds like a very long process,
and it is, but if you DO start everything early,
very few will get this far and the cost is almost
nothing (except for the lawyers letter).
By now, if the debtor still hasn’t reacted in any way to all of the above tactics – THIS is the time to sue. But never sue on principle.

 

Some questions to ask first.
  • Does the debtor have the capacity to pay?
  • Do they have assets to cover the debt?
  • How much will it cost to sue
  • Are they likely to defend (that’ll cost a lot more)?
  • … other factors?
Another thing to consider is whether to do the paperwork yourself or use a firm of lawyers. Which one? Depends on the time that you have available and the amount of the claim. So to answer the question “When is it appropriate to take legal action?” Answer? Avoid doing so until you absolutely have to. Save yourself the dramas, follow the Three Principles. 🙂

 

UPDATE – 30 August 2011
You’ll find sections of this book, How to collect business debts (written by Jim Heath) helpful when considering whether legal action is appropriate or not.

 

ANOTHER UPDATE – 03 September 2011
Some more links that will help
01 September – PRESS RELEASE – Jump in Queensland court fees will make it harder for SMEs to chase bad debts
an earlier post in this blog – a bird in the hand

By | 2017-09-01T04:19:27+00:00 August 23rd, 2011|Design, miscellaneous|0 Comments

About the Author:

Have you ever wondered why a client does business with you and then ignores your invoice like they had no intention of paying it in the first place or they treat you like their own personal line of credit, leaving YOU dangling, waiting months for their payment? Unfortunately this situation is all too common and can even be puzzling for the most experienced business owner. If you’ve ever had to handle outstanding accounts or you are just so over non-payers, then we can help. Real-world skills, solutions, tips & strategies to get more accounts paid on time, and, most importantly, how to maintain customer goodwill while keeping YOUR cash flow in the positive. You will find the blog posts helpful but to get real results, contact us by using any of the forms on this site, by email or by phone. I’ve been involved in the management of accounts for over 30 years, heard every excuse in the book, can spot a non-payer at 20 paces. Finance Companies in the 70s (systematic, tough), professional firms in the 80s (no systems, too gentle) and, since then, just about every other sort of business you can think of. I’ve written books on the topic, spoken all over the place about it and the blog in this website is my way of “giving back”. I hope you find it helpful.

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