Commercial debt recovery is the recovery of debt between businesses, usually performed by commercial debt recovery solicitors.
If you have ever run a business or company, you will understand the impact that non-paying clients have on your cash flow.
Have you provided your client / customer with goods or services and they are refusing to pay their invoice? If so then you may need to commence with the process of debt recovery.
The usual commercial debt recovery process will look something like:
- Overdue payment reminder letters (up to 3);
- Letters of demand for payment;
- Demands over the telephone;
- Attempt mediation with an objective third-party;
- Legal action by commencing court proceedings; and
- Payment or enforcement action.
Our experienced debt recovery lawyers will explain the commercial debt recovery process, give you tips and links to helpful debt recovery resources, compare traditional debt recovery methods, and outline our commercial debt recovery services.
Commercial Debt Recovery
A typical scenario in relation to a business debt will be something like this:
- You are a small to medium size business offering credit terms to your clients;
- You provide goods and/or services to a client, on credit terms for 7, 14 or 30 days typically;
- The time for payment of the invoice has passed, and the client has not paid.
Anyone who has had this happen can understand how unfair this is, and how much time you may need to invest to get this debtor to pay.
The first step in the commercial debt recovery process is to send the debtor reminder letters.
Commercial Overdue Payment Reminder Letters
Overdue payment reminder letters (as I am sure you already know) are letters sent by the creditor business reminding the debtor business that they are behind on their payments.
We typically recommend sending up to three (3) overdue payment reminder letters.
The first overdue payment reminder letter should be a reasonable friendly letter. The debtor could have genuinely forgotten to pay, missed the unpaid invoice, been sick, etc.
There is no value in coming straight out of the gate with all guns firing. We recommend giving them one (1) week to pay, then at the end of that first week, if they have not paid then you can send the second and third letters. The second and third overdue payment reminder letters can be a little more urgent.
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Be mindful that any communication with a business debtor must be for a reasonable purpose, and should be for the following reasons:
- To explain what you will do if they do not pay, including commencing legal proceedings;
- To ask why the debts have not been paid, or to ask why any repayments have stopped (if you have agreed to a repayment plan);
- To understand why the debtor has not been able to be contacted, and why the business debtor has not responded to your calls or emails;
- Make a demand, or demands for payment of the commercial debt;
- To provide the business debtor with information in relation to his/her/its business account with you;
- To attempt to get updated contact details if the business debtor has moved, or phone numbers have stopped working;
- To make arrangements for the payment of the business debt or to enter into a payment plan;
- To attempt to settle this matter, or arrange a mediation with the debtor; and
- To sight, or seize a security interest, for example collateral under the Personal Properties Securities Act 2009 (CTH) (“PPSA”).
You will only exacerbate matters, potentially prolong any recovery efforts, and even land yourself in trouble with the police if you attempt to do any of the following:
- Unreasonably harass or hassle the business debtor;
- Attempt to mislead or deceive the business debtor, telling them things that are not true in an attempt to coerce payment from the debtor;
- Breach the trust of, or take unfair advantage of, the disability or disabling circumstances of your business debtor, or act in any way unconscionably;
- Us any physical force against the debtor, or in any way coerce a business debtor, or a third-party to do anything; and
- Take anything belonging to the debtor that you do not have a right to take (secured property under the PPSA for example.
After you have given them some further time to pay the invoice(s) and if they do not, then you will need to engage a debt collection solicitor to send a letter of demand.
Letter of Demand for Outstanding Payment
We have written extensively about letters of demand for outstanding payment on this site.
Search our site for letter of demand content
We offer a FREE Letter of demand template below and FREE comprehensive letter of demand checklist written by lawyers.
- Click for FREE Letter of Demand Template
- Click for FREE Letter of Demand Checklist
If you get no luck, or your solicitors get no luck, from the letter of demand, then you may have to commence legal proceedings to recover this commercial debt.
Commence Legal Action for Commercial Debt Recovery
The recovery of business debts is usually commenced by claim and statement of claim.
You can commence action in the Courts or in the Queensland Civil and Administrative Tribunal (“QCAT”).
Jurisdiction of the Courts and QCAT
The monetary jurisdiction of the Queensland Courts are:
- Magistrates Court – claims up to $150,000.00
- District Court – claims up to $750,000.00
- Supreme Court – claims over $750,000.00
The monetary jurisdiction of the QCAT is:
- QCAT – small claims of up to $25,000.00
Advantages and Disadvantages of QCAT in Small Claim for Minor Debt
The advantages of commencing proceedings in QCAT are:
- It is a lot less expensive than commencing in the Queensland Courts;
- The process can be a lot quicker than the Queensland Courts;
- QCAT is designed for self-represented people, and lawyers need leave to appear.
The disadvantages of commencing proceedings in QCAT are:
- The minor debt jurisdiction is mostly a no costs jurisdiction. This means that you will not be able to recover your costs save for a few designated items as mentioned above;
- Legal representatives do not have an automatic right of appearance. This means that if you want us to appear at a QCAT hearing, you will need the leave of the tribunal, which is not always given.
Enforcement of Money Orders
The purpose of commencing legal proceedings is (amongst other possible reasons) to secure a judgment.
Once you have a judgment from the Courts, or a decision from QCAT registered in the Court, then if the debtor continues to not pay the judgment debt, then you will have to commence enforcement proceedings to enforce the judgment debt against the debtor.
You can enforce the judgment debt by one of the following enforcement warrants (if applicable):
- Enforcement Warrants for Seizure and Sale of Property;
- Enforcement Warrants for Redirection of Debts;
- Enforcement Warrants for Redirection of Earnings;
- Order for Payment of Order Debt By Instalments;
- Enforcement Warrants for Charging Orders;
- Money In Court and Stop Orders; and/or
- Enforcement Warrants for Appointment of a Receiver.
If you are unable to enforce the judgment debt through the Queensland Courts then you may want to consider insolvency as an enforcement option. We can assist you with issuing:
Non-compliance with a statutory demand raises the legal presumption of insolvency, and based on that legal presumption, a creditor can apply to wind up the debtor company.
Non-compliance with a bankruptcy notice allows a judgment creditor to present a creditor’s petition in the Federal Circuit Court of Australia.
To ensure that you do everything correctly, you are advised of the risks, and that your interests are properly protected, it is advisable to engage a suitably qualified commercial debt recovery solicitor.
Why use a Commercial Debt Recovery Lawyer
The law around debt recovery, securities, enforcement and insolvency is very complicated, and if you are not careful, you could have a costs order made against you. Commercial debt recovery lawyers are fit and proper people, lawyers have to comply with strict rules and legislation. A good debt recovery lawyer can help you with all of that and the following:
- Create and enforce due diligence procedures in relation to whether a new customer is eligible for a credit account;
- Obtain the correct security or charge which secures the debt in case of a default;
- Issue letters of demand outlining the rights of the creditor and foreshadowing what may happen if the debtor does not pay;
- Issue a debtor company with a statutory demand for payment, advise on the strict time requirements, and then the winding up procedure;
- Enforce any or all security or charge, by enforcement in the Court with jurisdiction, or the seizure and sale of the collateral under the PPSA.
- Commence legal proceedings in the Court with jurisdiction, or in the tribunal for the recovery of commercial debts;
- Commence enforcement proceedings to enforce a money order, enforcement warrants, enforcement hearings, issuing statutory demands, issuing bankruptcy notices;
- Make applications such as a Mareva injunctions or freezing orders to secure the assets of the judgment debtor; and
- Draft or update credit contracts to ensure that you are able to recover your debts effectively, you are able to recover as much of your costs as possible, and the debt is secured.
Commercial Debt Recovery FAQ
This FAQ section provides concise answers to common questions about commercial debt recovery, covering essential aspects of the process and legal considerations.
Whether you’re dealing with unpaid invoices or seeking to protect your business from future debt issues, these FAQs offer valuable insights and practical advice.
What is commercial debt recovery?
Commercial debt recovery involves reclaiming unpaid debts between businesses. This process is usually managed by commercial debt recovery solicitors and aims to recover outstanding invoices that affect a company’s cash flow. The process can include sending reminder letters, issuing demands, and taking legal action if necessary.
Why is it important to engage a commercial debt recovery lawyer?
Engaging a commercial debt recovery lawyer is crucial because the laws surrounding debt recovery, securities, and enforcement are complex. A qualified lawyer can navigate these laws, ensure compliance, and protect your interests. They can handle all aspects of debt recovery, from sending demand letters to enforcing judgments.
What steps are involved in the commercial debt recovery process?
The typical process involves sending up to three overdue payment reminder letters, issuing a letter of demand, attempting mediation, and potentially taking legal action. If the debtor still doesn’t pay, enforcement measures like seizing property or redirecting earnings may be pursued. Insolvency actions such as statutory demands or bankruptcy notices may also be considered.
When should I send overdue payment reminder letters?
Overdue payment reminder letters should be sent as soon as an invoice becomes overdue. Initially, the first letter should be friendly, giving the debtor a week to pay. If there is no response, subsequent letters can be more urgent, outlining potential commercial debt recovery actions if payment is not received.
What should be included in a letter of demand?
A letter of demand should clearly state the amount owed, the deadline for payment, and the consequences of non-payment. It serves as a formal notice to the debtor that legal proceedings may commence if the debt is not settled. Providing a clear outline of the next steps can often prompt payment.
What are the advantages of using QCAT for small claims?
QCAT (Queensland Civil and Administrative Tribunal) is less expensive and often quicker than the Queensland Courts. It is designed for self-represented individuals, although commercial debt recovery lawyers can participate with the tribunal’s permission. However, it is a mostly no-costs jurisdiction, meaning you cannot typically recover legal costs.
What enforcement options are available if a debtor does not pay a judgment?
Enforcement options include warrants for the seizure and sale of property, redirection of debts or earnings, and charging orders. If these measures fail, insolvency actions like statutory demands or bankruptcy notices can be issued. Each enforcement action aims to compel the debtor to satisfy the judgment debt.
What is the role of mediation in debt recovery?
Mediation involves a neutral third party who helps the creditor and debtor negotiate a settlement in the commercial debt recovery matter. It is an alternative to court proceedings and can be quicker and less expensive. Mediation aims to reach a mutually acceptable solution without the need for legal action.
How can I protect my business from future unpaid debts?
Implementing due diligence procedures for new customers, securing the correct type of charge or security, and ensuring clear credit contracts can protect your business. Regularly updating these practices with the help of a debt recovery lawyer can also reduce the risk of unpaid debts.
What are the potential consequences of misleading or harassing a debtor?
Misleading or harassing a debtor in commercial debt recovery action can exacerbate the situation and lead to legal repercussions for the creditor. It is crucial to communicate reasonably and truthfully, avoiding any form of harassment or coercion. Failure to comply with these standards can result in penalties and damage to your business’s reputation.
What is a statutory demand for payment?
A statutory demand for payment is a formal request issued to a debtor company requiring payment of a debt within 21 days. Non-compliance with a statutory demand can lead to the presumption of insolvency, allowing the creditor to apply for the winding-up of the debtor company.
How does the Personal Properties Securities Act (PPSA) relate to debt recovery?
The PPSA provides a legal framework for securing interests in personal property. In debt recovery, creditors can register their security interests under the PPSA, giving them priority over other creditors. This can be crucial in ensuring the recovery of debts if the debtor defaults.
What are the monetary jurisdictions of the Queensland Courts?
The Queensland Courts’ monetary jurisdictions are as follows: Magistrates Court handles claims up to $150,000, District Court handles claims up to $750,000, and the Supreme Court handles claims over $750,000. These jurisdictions determine where commercial debt recovery proceedings should be commenced based on the debt amount.
What should I do if a debtor does not respond to reminder letters or a letter of demand?
If a debtor does not respond to reminder letters or a letter of demand, the next step is to consider legal action. This can involve filing a claim in the appropriate court or tribunal and pursuing enforcement measures if a judgment is obtained. Engaging a debt recovery lawyer can ensure these steps are correctly followed.
Why might a business need a Mareva injunction or freezing order?
A Mareva injunction or freezing order is used to prevent a debtor from disposing of assets that might be needed to satisfy a judgment. This legal measure secures the debtor’s assets, ensuring they remain available for enforcement if the creditor wins the case. It is a powerful tool to protect the creditor’s interests.
