Stuck with an unpaid invoice?
Cash flow is essential for the successful operation of any business.
In an ideal world, a business would be paid all its invoices on time and every time. Unfortunately, unpaid debts are part and parcel of running a business. Invoices may be paid late if the debtor is having financial difficulties. Occasionally, for one reason or another, some invoices are not paid at all.
If your business is dealing with a debtor that has ignored reminder letters, statements, warning notices, or has simply refused to talk, there are a range of debt recovery options available to you depending on the particular circumstances.
The starting point is usually a letter of demand. It formally sets out why the debt is owed and when the debt is to be paid by. A letter of demand is a useful first step because it demonstrates to the debtor you are prepared to take matters further. The letter often prompts the debtor to respond with a payment plan or settlement proposal, which, if agreed to, can be a cost effective and quicker way to recover the debt without having to take any more steps.
Where the debtor is a company and you have reason to believe it is unable to pay its debts, you can issue the company with a statutory demand under the Companies Act 1993. However, a statutory demand should not be used when the company is solvent or when the debt is genuinely disputed.
Once served with a statutory demand, the company has a short window within which the company must either apply to set the statutory demand aside or make the payment. If the company fails to comply, it is presumed insolvent and can be placed into liquidation. If the company is trading or has assets, a statutory demand can be an effective tool because the company will in most cases want to avoid liquidation. Besides, forcing the company into liquidation is not always in the creditor’s best interests as there is no certainty of recovery of any money; particularly if, the company has no valuable assets or has other creditors.
If issuing a statutory demand is not available, or where the debtor is an individual, you can have formal proceedings for recovery of the debt issued in the Disputes Tribunal, District Court, or High Court, depending on the sum involved. Aside from the sum involved, there are a range of considerations you should take into account at the start of the process. These include the costs and delay of court proceedings, the credibility of any dispute, and, importantly, the debtor’s ability to satisfy any judgment against it.
If you are stuck with an unpaid invoice or dealing with a difficult debtor, we are available to assist you. For more information, please contact Paul Kim.