Every year, we assist clients in recovering payments from business relationships or contracts gone wrong. If possible, it’s always better to prevent debt from accumulating. Here's how:
1. Set up your business system to favour you
Wherever you can, insist on upfront payment first. If that’s not possible, insist on a deposit to ensure you break even. Depending on your industry, you could complete a project in phases, taking a deposit at the start of each phase – minimising your loss should later phases not proceed.
2. Monitor your contracts regularly
A contract is not just a once-off signing of a document. It should be managed regularly to ensure your counterpart is keeping up their end of the deal. If they breach a term of the contract, send them a polite letter immediately. You don’t have to rain down hellfire upon them – just let them know they’ve stepped out of line, and that you need them to correct course urgently. This breach letter is important for evidentiary purposes, and is often more effective at solving the problem than litigating later.
3. Take action quickly
Sometimes, all your best efforts won’t prevent a breach by your counterpart. If they remain in breach or haven’t paid their debt, it’s better to take legal action quickly – the longer you wait, the more difficult it becomes to remedy or recover payment. If the breach is serious, take action immediately after the breach notice period has ended. If it’s a debt that hasn’t been paid, don’t wait longer than 3 months to collect it. Debtors are often not managing finances correctly, and if you wait too long, you may find they have been sequestrated or liquidated – with little to no chance of recovery.
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