Do you know how to recover debts?
Clearing debts early enhances creditworthiness, reduces stress, and fosters cash flow. It also facilitates strategic planning and growth, setting a solid foundation for a successful year ahead.
Here are five steps for recovering debt:
- Revisit your business terms and conditions: these should set out what steps the debtor must take to resolve payment-related disputes. Your lawyer can help review this for you.
- Follow up: remind the debtor via email or phone of the amount due.
- Send a letter of demand: request the debtor pay the outstanding balance.
- Negotiate with the debtor: before going to court, your lawyer will first try to resolve the dispute.
- Go to court: commence a legal claim against the debtor.
Some other actions:
Issue a Letter of Demand
The first stage in the debt collection process is usually to issue a letter of demand. This is a formal letter requesting payment of the debt. It sets out the specific amount owed and the period in which the debtor can make payment before you take further legal action.
Sometimes, issuing a letter of demand can result in the parties entering into negotiations concerning the debt payment. If parties reach an agreed payment plan, they can enter a binding settlement deed outlining the agreed proposal. This payment plan can be in full or instalments.
A formal letter can encourage a creditor to promptly take action. However, there is always some level of risk that a debtor may ignore the letter or raise a dispute concerning the debt.
Going to court
Going to court to recover a debt is intimidating, expensive and time-consuming. Therefore, you should think carefully before embarking on this final stage of the debt recovery process, especially if you have not exhausted your alternative options for getting paid. This article outlines what you should consider before filing your statement of claim.
- Consider Whether Your Debtor Can Pay
Even if you have a strong claim, if your debtor has no means to pay, you may get little from starting a lawsuit. Therefore, before commencing court proceedings, find out what you can about your debtor’s finances. For example, by checking their credit report and bankruptcy status.
- Determine if You Can Prove Your Claim
Every good lawyer will tell you that ‘litigation is never a sure thing’. The more evidence you have to support your claim, the stronger your position will be. While evidence in the form of written documents is always best, it is not essential. The court will determine a claim without written documentation on a ‘he said/she said’ basis.