Debt recovery: Carefully weigh up all the options

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By Terry Sage, Trades Coaching New Zealand

 

Here’s a topic that has popped its ugly head up twice in the past few weeks, so I thought it would be a good idea to give it a bit of word time.

It’s that gnarly issue about not getting paid. You have done the work, the clients are happy, lots of thank yous were given, and the invoice was sent.

Only then there is no reply from letters, emails, texts or calls. Not only is it so damn frustrating, it is immensely stressful and can take months to recover from. It can also, in extreme cases, ruin a company.

So what are the options? There are many but the first consideration is the amount that is owed. It costs money to chase money, and you have to weigh up whether is it worth spending $2k to chase $1k.

Maybe you are thinking that you can on-charge the debt collection fees. Well, yes you can, but only if it is clearly stated in your terms of trade and if every client gets a copy.

Even then, the amount of time you have to spend on the chase has to be accounted for. Will it all be worth it when those hours could have been spent on bringing in more money.

Yes, you’re now saying “doesn’t matter what the amount is, it’s the principle that counts”, and now your pride is taking over.

We all hate losing, especially if we are in the right. But put the moral point of view on hold and look at it purely as a business transaction.

If it’s a small amount you could try the small claims court. I believe it is a negotiated amount up to $15,000 allowed here.

It’s a reasonably fast service and not overly expensive, there is a small filing fee, and within a couple of months you should have a hearing date. It’s then just you and them in the room with a mediator.

The best part is there are no lawyers’ fees as they are not allowed in the room. The worst part is it means you have to present your side in the room, across a small table, with the guilty party looking at you, and while keeping all emotions and anger at bay.

It’s a big ask and can be unpleasant. The outcome is legally binding but if they don’t pay then you still have to chase through the courts.

For amounts larger than $15,000 you have the full portfolio of the New Zealand judicial court system at your disposal. It’s a system that works, thankfully, but it can be slow and costly.

A client recently was told to allow $25,000 to 30,000 in legal fees, allow 18 to 24 months before they see an outcome, and that there were no guarantees — but they were chasing more than $100,000.

A big question and one that needs to be considered early on in the chase is do they actually have the money to pay you or the means to raise it? If they don’t have either are you spending money just to prove a point?

So the two scenarios that came to light in the past week were at the opposite ends of the spectrum.

The $100,000 plus debt is in the hands of the lawyers and is now going to court (eventually). Fortunately, the company is in a position to be able to continue and cover the legal bills, but a loss of $100,000 will certainly hurt and take time to recover from.

The other client had an unpaid invoice of $4000, and the people who owed have vanished — or so they thought. A thousand dollar bill paid to a private investigator has uncovered them, and now papers have been served for a small claims court hearing.

The jury is out on a successful ending here, but it was decided a cost of $1000 and filing fee was worth the chance.

If you ever find yourself in the unfortunate scenario of financial loss, you have to weigh up all the options and then make a decision that will sit with you for years to come.

One piece of advice — as much as we would like to go and knock on their door and demand payment, this can lead to more trouble than its worth.