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
- Send them a “Personal Appeal” email
- Send them a Letter/Email of Demand
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 –Â 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.
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 –Â Jump in Queensland court fees will make it harder for SMEs to chase bad debts
an earlier post in this blog –Â a bird in the hand
Some more links that will help
01 September – PRESS RELEASE –Â Jump in Queensland court fees will make it harder for SMEs to chase bad debts
an earlier post in this blog –Â a bird in the hand
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