Client not Paying Invoice? How to Recover the Debt

Do you have a client not paying invoice or invoices?

If a customer refuses to pay an invoice or invoices, this could be a sign that they are not solvent.

If this is the case then it is important that you act quickly to recover the debt from this client.

If the debtor becomes bankrupt or goes into liquidation, and there is nothing payable, then you might lose the opportunity to recover that unpaid invoice.

This article explains what to do when someone owes you money and refuses to pay an invoice.

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Client not Paying Invoice

If you have a customer refusing to pay for work done, or services provided, then you may have to start your debt recovery process.

Your debt recovery process should look something like this:

1. Attempt to contact your client / customer and send reminder letters;
2. Send a letter of demand;
3. Commence legal proceedings;
4. Enforce your money order or judgment.

This article will break each of these steps down for you.

The Warning Signs – Client not Paying Invoice

Firstly, it is important to notice the warning signs of a customer who might not pay the invoice when it becomes due and payable, they are:

1. The debtor might ask for cash discounts;
2. The debtor asks you for extensions in time – however some bigger clients (Govt departments for example) might need 30 or 60 days terms, as is their company policy;
3. The debtor wants to pay by cheque;
4. You hear that this debtor owes money to other business – this can occur a lot with a head contractor under a building contract, and its subcontractors;
5. You have only received part-payments as against the debt, $50 here, $100 there;
6. Your debtor continually gives you excuses – “we’re waiting for a big contract to pay us” or “we’ve had problems with our accounting software” for example.

Of course, these things might be true!  However, in our experience these excuses are usually stalling tactics because your customer cannot afford to pay your invoice.  Further warning signs include a change in the customer’s behaviour, namely:

1. The debtor does not answer their phone and/or does not return your phone call;
2. The debtor starts becoming more aggressive, starts disputing the invoice some weeks or months after the work was completed; or
3. The debtor starts praising you without reason – possibly in an attempt to curry favour before they ask you for more time to pay;
4. The business premises are closed during business hours; and
5. The debtor rescheduled appointments or agreed payment dates.

Other excuses we see is that clients / customers feign personal problems or attempt to blame others for their inability to pay an invoice, such as:

1. The debtor claims to have marital problems; and/or health problems; and/or numerous other problems which they allege to be affecting their cash flow; or
2. The debtor claims that they are waiting to be paid for a “big job” or words to the same effect, and they have limited cash flow until they pay.

Sometimes however there are no warning signs at all.  If you have a client not paying invoice, or more than one invoice, then you will have to try to get your money from them.

Attempt to Contact your Client / Customer and Send Reminder Letters

Before you engage a professional debt recovery lawyer, you should exhaust all avenues yourself first.

The general rule-of-thumb is:

1. Two (2) weeks overdue – Send polite reminder letters or emails – remember that they might be having genuine short term cash flow problems and you might want to retain them as a client in the future;
2. Two (2) to four (4) weeks overdue – Make personal contact by phone, address why your client not paying invoice – make a fixed time and date in which this invoice will be paid;
3. Four (4) to six (6) weeks overdue – Persistent following up with the client, strictly adhering to the time and date previously agreed to.

TIP – In these early stages, we give debtors an “out”.  That is, we give them an excuse.  Something like, “you have not returned our client’s emails, maybe they have gone into your junk folder by mistake”.

We do this so as not to embarrass the debtor during this initial contact, but now they know that the lawyers are involved.

The debtor can pretend it was just an accident, they save face and pay the invoice.  There is an old saying – “you catch more flies with honey than you do with vinegar”.

In these early stages, unless you are getting rude, and uncooperative correspondence from your debtor, it is best to try to encourage debtors to pay.  Other options you can use to maximise your chances of recovery in these initial stages are:

1. Agree to set up recurring payments in a payment plan – get this in writing and signed by the debtor;
2. Be proactive with recovering this debt, set tasks in outlook, follow up as much as you are allowed in your State or Territory;
3. Contact the debtor as soon as they have missed payment – the more quickly you can jump on a client not paying invoice, the better chance you have of being successful.

However, in most cases the debtor is not having genuine cash flow problems, they are not genuinely embarrassed about not paying.  In these cases, you will have to take the next step, and send the debtor an official letter of demand.

Send a Letter of Demand to Client not Paying Invoice

A letter of demand, or overdue payment letter for a client not paying invoice, states how much is owed, what for, and when the invoice needs to be paid.

It may also include a warning that you will consider legal action if the debt is not paid by a particular date.

We have written extensively about letter of demand on this site, read about our letter of demand here.

If you do not get any luck with a final notice or an official letter of demand then it is time to commence legal action to recover payment from a client not paying invoice or invoices.

Commence Legal Proceedings

In Queensland, you have two main options to sue a client not paying invoice or invoices.  They are:

1. Commence proceedings in the Queensland Civil and Administrative Tribunal (QCAT); or
2. Commence proceedings in the Court with jurisdiction.

Commence proceedings in QCAT

QCAT has a minor civil dispute jurisdiction in relation to minor debt claims.

If you have a debt of up to $25,000.00 then you can commence proceedings in QCAT.

The advantages of commencing proceedings in QCAT are:

1. It is a lot less expensive than commencing in the Court;
2. The process can be a lot quicker than the Court;
3. QCAT is designed for self-represented people.

The disadvantages of commencing proceedings in QCAT are:

1. The minor debt jurisdiction is mostly a no costs jurisdiction.  This means that you will generally not be able to recover your costs save for a few designated items;
2. Legal representatives do not have an automatic right of appearance.  This means that if you want debt recovery solicitors to appear at a QCAT hearing, you will need the leave of the tribunal, which is not always given;
3. The minor debt jurisdiction is capped at $25,000.00.

Commence Proceedings in the Court

Alternatively, if you do not have the time to commence proceedings yourself, or you do not want to risk having to appear at the hearing unrepresented by a debt recovery solicitor, or your debt is for more than $25,000.00, or you don’t want to risk getting a non-typical result (as can happen in QCAT), then you should instruct a debt recovery lawyer to commence proceedings in the Court with jurisdiction.

The jurisdiction of the Courts are:

1. Magistrates Court can hear claims of up to $150,000.00;
2. District Court can hear claims of up to $750,000.00;
3. Supreme Court can hear claims of over $750,000.00;

The advantages of commencing proceedings in the Court are:

1. It is a legal process, with judicial officers who understand the law.  It is less likely that you will get a non-typical result (as can happen in QCAT);
2. You can use debt recovery solicitors and barristers to maximise your chances of successfully obtaining your desired outcome;
3. You are able to claim costs, either standard costs or indemnity costs of commencing the proceeding.

The disadvantages of commencing proceedings in the Court are:

1. It is more expensive than QCAT;
2. It can take longer to reach your desired outcome.

Whatever you decide, whether you decide you commence proceedings to recover money from a client not paying invoice in QCAT or the Court, the desired outcome would be to get an enforceable money order.

Getting a Judgment or Enforceable Money Order

There are a few different way in which you can get an enforceable money order.

Firstly, if you file a claim in the Court and serve it on the debtor, and the debtor does not file and serve a defence within twenty eight (28) days, then you can request that the Court give judgment in default.

Secondly, if you file a claim in the Court and serve it on the debtor, and the debtor files a defence that has no prospects of success, then you may apply for summary judgment.

Lastly, if you file a claim in the Court and serve it on the debtor, and the debtor does defend the claim with some prima facie defence, then you may have to have a settlement conference, or a trial.

However the matter unfolds, the desired outcome of legal proceedings is to get an enforceable money order from the Court.

Rule 793 of the Uniform Civil Procedure Rules 1999 (QLD) (“UCPR“) says:

“enforceable money order” , of a court, means:

(a) a money order of the court; or

(b) a money order of another court or tribunal filed or registered under an Act in the court for enforcement.

This means that if you get a judgment / money order in the Court, or you have registered your QCAT decision in the Court, and your debtor still refuses to pay, then you can commence enforcement proceedings to enforce the money order.

Enforce your Money Order or Judgment

Once you have a judgment or an enforceable money order, there are a number of different enforcement options, they are commenced by:

1. Summoning the debtor to an enforcement hearing;
2. Apply to the Court for a number of different enforcement warrants;
3. Serve the debtor company with a statutory demand; and/or
4. Serve the personal debtor with a bankruptcy notice.

Summoning the Debtor to an Enforcement Hearing

An enforcement hearing is an information gathering exercise in an attempt to uncover financial details of the debtor.

The debtor will have to complete a Form 71 – Statement of Financial Position which is a complete ledger of the debtor’s assets and liabilities.

If the debtor does not provide you with this document within fourteen (14) days, or does not complete the document to your satisfaction, then you can apply to summon the debtor to appear at an enforcement hearing.

At the enforcement hearing the debtor can be questioned about their assets and liabilities, and examined in relation to its/his/her ability to pay.

You can force the debtor to provide you with documents and information in relation to:

1. Any assets including any real property, and personal property, and cars/boats/motorcycles, or any other property that can be seized and sold;
2. Any business or personal bank accounts;
3. Any debts that they owe, or that is/are owed to them;
4. Any income, and where the income comes from;
5. Any means of paying their debt to you – ability to borrow; or
6. Any other relevant information about their financial position.

If the debtor does not attend the enforcement hearing when summoned, you can ask the Court to issue an arrest warrant, where the debtor can be arrested and brought before the Court to attend the enforcement hearing.

If the hearing uncovers anything of value, which would satisfy the debt then you can apply for an enforcement warrant.

Apply to the Court for Enforcement Warrants

There are a number of different enforcement warrants you can use, depending on the circumstances of your particular matter, they are:

1. Enforcement Warrants for Seizure and Sale of Property;
2. Enforcement Warrants for Redirection of Debts;
3. Enforcement Warrants for Redirection of Earnings; and
4. Order for Payment of Order Debt by Instalments.

For example, if the debtor has unencumbered real property or personal property, then you can apply to the Court for a warrant for seizure and sale.

If you get it, the bailiff will attend at the address and repossess a car for example, then auction the vehicle to realise cash to pay the debtor’s debt to you.

If the debtor that you contracted with is a company (Pty Ltd), then you can enforce the judgment by serving the debtor with a statutory demand.

Serve the Debtor Company with a Statutory Demand

Serving a debtor with a statutory demand is the first step in winding a company up in insolvency.

A correctly drafted demand, correctly served, gives the debtor twenty one (21) days in which to pay the debt, or made payment arrangements suitable to the debtor, or apply to set the demand aside.

Failure to do so and the debtor company is presumed to be insolvent.  It is based upon the legal presumption of insolvency that you can apply to wind up the debtor company.

Whether you decide to wind the debtor company up or not, a statutory demand is a good way to start a dialogue with the debtor.  Especially if your debt is with a building and company for example, as the QBCC Act says that an insolvency could make the company an excluded company, and the directors, excluded individuals, for three (3) years.

At this stage, a debtor company may take steps to avoid being wound up, and may actually acknowledge their debt to you.

Choose a Statutory Demand Qld Services Below

Issuing Statutory Demands	Setting Aside Statutory Demands

Serve the Debtor with a Bankruptcy Notice

Serving the debtor with a bankruptcy notice is the first step toward bankruptcy.

As with a statutory demand, serving a debtor (who is a natural person) with a bankruptcy notice gives them twenty one (21) days in which pay the debt, or make arrangements with you to pay the debt.

Failure to do so means that they have committed an act of bankruptcy, and a creditor is then able to present a creditor’s petition.

Preventing Bad Debt from Occurring

Moving forward, if you can prevent bad debts from occurring in the first place, then you can save yourself a lot of time and money.  Some steps that you can do include:

1. Get paid for work upfront and/or take a deposit or progress payment;
2. Send the invoices right away as soon as the work has been done; or
3. Make the payment terms strictly cash on delivery (COD) and take a swipe of a card as security for the payment;
4. Talk to other business and see if they have had any bad dealings with this particular debtor, or pay the few dollars needed for a full credit check before offering credit.

This is not always possible, we understand that.  However, a correctly worded contract or terms and conditions in a credit application may help you recover your losses if you do have to commence proceedings.

Increase your Chances of Getting a Successful Outcome

Don’t do any work or provide any goods to a company unless you have a legally enforceable contract in place.  This contract should clearly identify the following:

1. Payment Terms – Outline the total amount of days after being issued with the invoice that payment is to be made by.  Strictly 14 or 30 day terms are usual.
2. Payment Method – How the invoice can be paid, bank account details, EFTPOS details or bank cheque details, for example.
3. A Quote Outlining Goods and/or Services – take the time to be thorough with your quoting.  In contract law, this is usually your offer to be accepted. This will form part of the contract.

It is also advisable to have legally enforceable clauses in the event of a default, such as:

1. Default interest at an enforceable rate;
2. Costs on the indemnity basis for a default – this will help you in an application for costs;
3. Security for the debt – either a charging clause if allowable, and/or a charge under the Personal Property Securities Act (“PPSA”);
4. Director’s / Personal guarantees – this means you can sue the directors personally as well as the company.

If you have a client not paying invoice then the process to recover those funds are outlined above.

Client not Paying Invoice Frequently Asked Questions

How long can you be chased for a debt in Queensland?

Section 10 of the Limitation of Actions Act 1974 (QLD) says:

The following actions shall not be brought after the expiration of 6 years from the date on which the cause of action arose … an action founded on simple contract or quasi-contract

However, section 35(3) of the Limitation of Actions Act 1974 (QLD) says:

Where a right of action has accrued to recover a debt or other liquidated pecuniary claim … and the person liable or accountable therefore acknowledges the claim or makes a payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment.

This means that the limitation period for being chased for a debt in Queensland is six (6) years from when the cause of action arose, unless the debtor makes a payment or acknowledges the debt.  If that happens then the six (6) year period starts again.

Read How Long can a Debt be Chased in Australia?

What happens if you ignore a debt recovery lawyer?

If you ignore any calls for the repayment of debts then the action mentioned can be made against you.  Further, in some cases the debt may become part of your credit file and may affect your ability to get credit in the future.

If legal proceedings are commenced against you, and you continue to do nothing, then there is a real possibility that you will be made bankrupt or wound up in insolvency.

What happens after a default judgment?

After the creditor is given judgment, they can commence enforcement proceedings against you.

Those enforcement proceedings can include an enforcement warrant or bankruptcy or could result in a debtor company being wound up.

DEDICATED FOCUS – COMMERCIALLY MINDED – PROVEN RESULTS

GET A FREE FEE ESTIMATE TODAY

OR CALL: 1300 545 133 FOR A PHONE CONSULTATION