23 Feb Collect your own small debts in court, for low cost with high success
I am writing this because I find myself telling other business owners this information regularly.
People who don’t pay when they know they should are basically thieves – they are taking your money and they deserve to be forced to pay.
Others are professional liars and manipulators and will concoct stories about how hard their life is, in order to get sympathy and not have to pay what they owe.
It is NOT your business’s responsibility to pay for someone else’s lack of ability to plan or execute. You did what you said you would do, now its their turn to do the same.
Don’t let yourself be pushed around – it is an important part of business to collect your debts. There is a time cost to money. When you are owed money, you do not have access to this money to grow your business or pay your own debts.
You should do this process, at least for the experience, so that you can improve your business. You will learn a lot about how to make your agreements clear and enforceable.
I always try my absolute best to resolve an issue before it gets this far. I will always choose to sacrifice profit in order to protect my reputation and make sure that I’ve done everything possible to end up with a happy customer. If someone is really having financial problems I may also offer them a repayment option like $x every Friday for x weeks. Collecting the debt gradually and maintaining the business relationship is usually preferable for me, and can even help to strengthen a relationship.
Similarly, some customers legitimately have a gripe or think that they should not pay because something was not delivered according to expectation. Your agreements with customers should be very clear. This is YOUR responsibility in business – to remove all potential areas of misunderstanding. If a customer is confused about the process or contract they entered into then you should seriously review your process – the best debt collection is the one where there is no way to argue or doubt it.
This is my layman’s understanding of Queenslands minor debt court (QCAT) and how I use it. Other Australian states have a similar system. QCAT is designed to be used by ordinary people – that’s the whole point of it – a low cost way for ordinary people to access the courts for commercial disputes.
You may wish to get professional advice before you do your first court action, with the intention of repeating the process later like a “template”. Personally I did not, I just figured it out and tried a few and learned along the way. It’s not hard.
I have a 100% success rate at getting paid an amount I’m content with, either before court or else enforced by the court. This shows me that the system works, that my processes are solid, and that I don’t make spurious or unfair claims. The system isn’t perfect and success is not guaranteed, but if you do nothing you’re guaranteed to get nothing.
I am not a lawyer. This is not professional advice.
This is just my experience sharing. I have nothing to gain from sharing.
Do your own research. Some details may have changed since I last used the system or wrote this article.
Also remember that Magistrates will assign damages based upon percentage fault. So if you have a contract for $10,000 and the customer refuses to pay any of it, even though you delivered 80% of what was agreed to, then you will still be able to collect SOME of what is owed in most circumstances.
Written and signed contracts are the best way to later collect debts, but verbal agreements and email conversations ARE STILL CONTRACTS, and you can usually still enforce them. The more information you have in writing the better. Email IS accepted as potential proof, as are diary notes, phone call records, and anything else which helps to show your statements are true.
Some industries (eg building industry and real estate rental) have their own variations on this court process so check carefully online that you are lodging the matter with the correct court.
Everything you need is online. Look up the relevant court for your state. For QLD here is a place to start http://www.qcat.qld.gov.au/__data/assets/pdf_file/0003/175530/Fact-sheet-making-an-application.pdf
QCAT is the QLD Civil & Administrative Tribunal and there are similar ones in other states. It replaced the “minor debts court” but its function is similar. It provides a low-cost court system for commercial matters under $25,000.
In most circumstances plaintiffs (the person suing) and defendants must represent themselves in court – they cannot be represented by a lawyer. This is a crucial point. A lawyer can prepare the case, but the size of your lawyer/wallet does not have a significant impact on the outcome of the case if you prepare properly.
Lodgement costs are low: Between $23 and $294 to lodge a claim, depending upon the amount. THIS IS YOUR ONLY COST, other than a large chunk of your time.
You CAN and should claim the lodgement costs within the claim total. You should also claim a bookkeeping fee and an admin fee – I usually make this around $100 total but it has been a long time since I checked on what is the optimal amount.
If someone is already bankrupt or their company is in liquidation/administration, you cannot use a minor debt court to jump the queue of debtors and get paid. However check the entity you are suing – just because one company is being liquidated, does not mean you cant sue another company / person. You must sue the entity with which you have the agreement. Usually you can’t sue a company director personally if your agreement is with the company. Get professional advice if you think you need to sue multiple people / entities.
The decision on the day is usually final. Sometimes appeals are allowed but do your best effort the first time.
Assuming you are the plaintiff, before you lodge the paperwork and pay, do the following as in many cases the threat of court will prompt someone to pay.
Issue a Final Demand to the defendant.
This should be zero emotional content and additional detail. It’s facts and figures written in as few words as possible. How much is owed, when it was due, what it was for. State it with 100% confidence that you will be paid. You’re not ASKING them to pay, you’re telling that they have a choice between paying, or going to court and paying MORE.
At this time consider what amount you will settle for. In my mind this is:
The amount I am confident I will get in court minus the cost of my time for approximately one day. So A $5000 debt I might decide to settle for $4000. Other people will not be prepared to settle for one dollar less than they are owed – its up to you.
This must say “Final Demand” and have the date. It must have the amount owed. It must have a date for final payment. If your final demand contains an offer to them to pay a less that what is officially owed (Ill often offer a discount in order to get paid faster and save me 1 day of preparation and court time) – This is call an “Offer to Settle” and it should just be a simple 1-2 sentences. If you are including an offer in your Letter of Demand, you should write “Without Prejudice” at the top of the letter. This means that the contents of the letter should not be taken to prevent you later seeking to recover ALL of the debt. You are stating that a later claim will not be ‘prejudiced’ by this offer to settle.
If the defendant has previously stated they will pay the debt, this is called “an admission of debt”, and it makes it much more likely that the magistrate will award the amount to you. Its harder for the defendant to fight the amount in court and say that it isn’t true or the amount is wrong, or that you did something wrong, if they have already said they will pay it! Reference this in your final demand.
Send the letter by email and print it and send it by registered mail with Australia Post. Collect the proof of delivery from Australia Post.
An example of this letter:
Sent: Friday, 21 February 2014 11:05 AM
To: Warren Bruce
Subject: FINAL DEMAND TO XYZ PTY LTD
21st February, 2014
WITHOUT PREJUDICE
Dear Warren,
Despite multiple requests for payment of the attached account, none has been forthcoming.
There has previously been admission of the debt in writing, along with the promise that XYZ Pty Ltd will pay the debt.
There is a signed contract in place requiring payment.
Invoice 1234: $2500
Invoice 1235: $2500
A total of $5000 is owing.
We make a once only Without Prejudice offer to settle this matter for $4000.
{Payment instructions if its not on attached invoices}
Unless payment of $4000 is received by close of business 25th February 2014, then we shall lodge this matter with Queensland Civil and Administrative Tribunal, and you shall receive a summons to appear.
With admission of debt and a signed contract, enforcement is a formality, albeit an inconvenient expenditure of time for both parties.
In addition to the attached amount we will be awarded interest at 2.5% per month, administrative costs, and lodgement costs.
The total claim to be lodged on Monday 28th will be:
Original debt amount: $5,000
Interest at 2.5% per month x 7 months: $875 (will increase depending upon court date)
Admin and bookkeeping: $105
Lodgement Fee: $105.40
TOTAL CLAIM: $6085.40
We request you settle this debt immediately.
Sincerely,
Scott Jones
ABC Contracting Pty Ltd
Note that all my contracts state the interest rate at 2.5% per month. If you don’t have this, you should go with the court pre-scribed interest rate which is probably around 9% – 11%. Look it up online. If you get it wrong the magistrate will chop it down, but you don’t want to look like you’re trying to get more interest that you are rightfully due.
Note that what they thought was a $5000 debt has suddenly become more than $6000, with an offer to settle for $4000. That’s not a bad incentive.
This combined with the follow up court lodgement will often be enough to make people pay if they know they should.
Give them 7 days to pay, then IMMEDIATELY get your court paperwork, fill it out and lodge it. Do NOT ask for payment again, all you’re doing is making yourself look weak and look like your court threat is a bluff. If they contact you and promise to pay but have done this multiple times already, do not delay your next actions. Your next communication with them will be a court document.
Every minor debt court has a limit to the claim that can be awarded. It is often around $25,000. Your claim can be for a higher amount, but this is the maximum that the magistrate can award.
Make sure you sue the correct entity. If your contract is with a company, sue the company. If the contract is with a person, sue the person. If you get this wrong the matter may be thrown out of court on the day and you’ll have to do it over again. Make sure you get the correct postal address. You can do an ASIC search online for a company/business details if you aren’t sure. The address where they conduct all their business should be fine.
Next, make sure the court paperwork is delivered. Check with the court on lodgement whether you have to have it served to the person or whether sending to the business registered address is fine.
Once you know they have received the court document, they have to respond to the court to say they are defending. If they do not, you can apply to court for a hearing date and you should be awarded default judgement because the other party will not defend at all.
You will receive a copy of their defence from the court.
Next prepare for your time in court. Most of the time its all over within 1 hour of being in court, but you may have to wait all day for your matter to be heard.
Print out all your evidence including:
What was promised
What was delivered & what was not delivered.
Records of them purchasing or entering into a contract, or agreeing for you to supply. Them not asking for your goods/services IS a legitimate defence so make sure you can prove that they ordered the goods. If it was only done via a phone call, then FIX YOUR PROCESS FOR NEXT TIME, but its still worth trying to make the claim. If the client has ordered off you before, and you can prove you delivered, and the customer USED the product/service, then you have a reasonable chance of success.
Admission of debt – this is a big one. See above for description.
Anything else that you think could be questioned. Think about it from the defendants point of view – what are they going to say, how will they defend; prepare for all scenarios.
The court may request that you go to mediation before court. If you need to do this, you can stick to your original offer to settle, but increase it to cover the time you have now spent getting this far.
Court Day
The magistrate will drive the court. He/She will have already read the claim. He will ask you a bunch of questions and then ask the defendant more questions. You will NOT hav to give a 30 minute presentation or anything like that so don’t waste your time preparing for one – it will not run like an American TV show. Be prepared to deliver facts and figures very quickly, and perfectly matching what is written in your claim.
The court will then award you judgement for some or all of what you have claimed. Even if you don’t do a great job of presenting your case, but you do manage to present the basics
Follow up with a letter to the customer immediately, telling them they have 10 days to pay or enforcement action will commence.
You can threaten to have their company declared insolvent if they do not pay, on the basis that there is no legitimate reason to not pay an unappealed court order, other than them being insolvent.
If they do not pay, there is a court process to follow to begin the enforcement process.
If you need to proceed to enforcement, get legal advice on the most effective path given the circumstances. If you do everything else properly you’ll probably never need enforcement.
Good luck, and stand up for yourself!