Debt collection can be a long and stressful process, but it doesn’t have to be.

Knowing what options are available to you, and how to utilise those options in an effective way, can put you a step ahead of your debtors and towards successful debt collection.

There are a few key pathways that you can take if someone is failing to pay the debts owed to you.

It is first important to look at the terms of the agreement between you and the debtor. This will outline your legal rights when the debtor has failed to pay up.

If the debt is undisputed, the first thing to do as a creditor is to send the debtor a letter of demand. This is a formal letter which sets out a legal demand and should include:

1. The details of the debt;
2. Terms of the agreement between the parties;
3. Giving notice that, unless the debt is paid in full by a specified time, court action will be initiated to recover the debt without further notice to the debtor; and
4. Payment method details.

A letter of demand should be your first port of call and should be drafted by a lawyer if possible. A formal letter written by a lawyer is often enough to spur a debtor into paying off their debts.

However, a letter of demand may not work on all debtors. If the debtor refuses to pay, you may apply to the Court for a Summary Judgment. This is a relatively quick process and is enforceable.

Enforcement action can even include seizing and selling the debtor’s assets or taking priority by intercepting money owed to the debtor by another person.

If the debt is owed by a company you may choose to enforce the debt through a Statutory Demand. A Statutory Demand is a written demand requiring a company to pay a debt within a certain time frame. The debt must be over $1,000.

If the company continues to fail to pay the debt, the company can be liquidated. The risk that the company will be liquidated is often enough to get a company that can pay to prioritise paying you.

If you have a disputed debt for less than $30,000, you can make a claim to the Disputes Tribunal. A disputed debt exists when the debtor does not believe they owe you the amount you have specified.

The Tribunal has an easily accessible online application process, or an in-person option.

Once you have applied, the debtor will be notified, and a hearing date will be set. The Tribunal’s decision is enforceable by the courts if the debtor refuses to pay. However, it is important to note that the Tribunal cannot be used to force a debtor to make a late payment.

If you have a disputed debt for more than $30,000, you can make a claim to the District or High Court. The District Court can settle the dispute if the debt is under $350,000. The High Court can settle the dispute if the debt is any more than $350,000.  

The Court process can require a big investment, so it is important to act quickly. The longer you leave it the less likely a debt is to be paid.

You should first attempt to collect the debt through either a letter of demand or Statutory Demand (if the debtor is a company). These enforcement options can spur a debtor into action for the most economical investment by the creditor.

If you are struggling to collect the debt that is owed to you, it is important to know your options for enforcement. If you are confused about these options or would like to know more about the options mentioned above, it pays to seek advice from a professional with experience in the area.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.

Shaun Cousins and Hunter Flanagan-Connors