There are three ways to collect a debt:
- Do it yourself – by sending a letter of demand advising that you will place the matter in the hands of your solicitor if the amount owed is not received within 7 days.
- Use a debt collection agency – who will send letters and make phone calls.
- Use a lawyer – who will send letters, make phone calls and/or issue a claim or writ.
A lawyer uses his or her skill and knowledge of breach of contract and legal solutions in contract law to suit your case.
Note – a debt collector will charge you a fee to use a lawyer if legal action is required.
The costs of a letter of demand can start at $440.00, and in some cases this is all that is required.
Legal action (a claim or writ) can be the starting point or the next step from a letter of demand.
- Fees cover time amongst other things spent giving a legal opinion on your options, research and preparing documents. Fees are charged from $418.00 to $517.00 per hour (GST inclusive). ½ hour to 2 hours is usually required, depending on complexity, to initiate the matter. Further costs will be advised at the time of your initial appointment
- Fees charged by the court (depending on the amount of the debt – please ask for an estimate), process servers and bailiffs, for service of legal documents.
A debt collector is cheaper if the amount of the debt is smaller than what your legal costs might be. A debt collector will usually charge a commission on the amount of money recovered.
- If the person from whom you are collecting the debt does not have the means to pay their debt you may be throwing good money after bad.
- Consider what you know already about your debtor’s means to pay – if you know they don’t have funds or property to sell, there may be no point in proceeding.
- When the amount you are owed is less than what it would cost to recover it. Write the debt off as an expense against the business which may have tax benefits.
- Some people are regular bad debtors and may be known to your lawyer if they operate in our local community. Your lawyer may be able to advise you on your chances of recovery.
After the first debt recovery matter, we usually have a good idea of your situation and the cost of future actions will decrease, as less time will be required to collect information. Often, we can do further work via telephone, fax and email.
It is cheaper to have all your legal matters handled by the same lawyer or legal firm.
- Ask for cash payment in full, or payment of a deposit, before you commence supply of services or products
- Take an imprint of credit card details
- Have your client sign an authority to debit the credit card
- Make sure the terms of payment are clearly written on your invoice
- Don’t take work if you know there is a risk of non-payment
You should provide your lawyer with all invoices and other documentation that sets out the details of the debt you wish to recover.
Your lawyer will explain the alternatives available to you and may counsel you on the best and most economical way to recover the debt.
It must be understood that engaging a lawyer and/or a debt collection agency to recover a debt is no guarantee of success.
However, if you register legal action against your debtor and they are unable to pay at the time, your right to enforce payment of the debt remains open for six years after a judgement is obtained. Should their circumstances change during those six years you can proceed with enforcement of your judgement.