If you are owed money by another person or organisation, it is likely to be as a result of a written or oral contract for goods and services.  A well drafted contract can provide you with protection when things go wrong – especially when it comes to the cost of debt collection. 

A written contract is an excellent way to ensure that two parties have a clear record of what they have agreed to.  Important things to include in a contract are: the correct names of the parties, a description of the goods or services being delivered, the agreed price, due dates for delivery of the goods and services, and due dates for payment.

A contract should also set out what is to happen if things go wrong (for instance the goods or services are not as described in the contract, not delivered on time, or payment is not made on time).  If you regularly sell goods or services, you should make sure that you have had an experienced lawyer check over your standard contract (often called terms of trade or terms and conditions).  An expert will help you to consider all the issues that arise when things do not go to plan.  Some examples of important clauses include:

  • whether interest and administration fees can be added to unpaid invoices;
  • whether you can cancel the contract (rather than continue to be liable to deliver further goods and services that may also not be paid for);
  • whether you can recover goods that have not been paid for;
  • other options to resolve a dispute without the expense and delay of going to court (especially if a small dispute is holding up the rest of the contract being completed); and
  • who pays for the costs of debt collection.

If your contract does not provide adequate protection against bad debtors, you may end up having to pay for all, or some, of the debt collection costs out of your own pocket.  Unless the debt is large enough to make debt recovery worthwhile, you may end up having to write the debt off. 

To avoid debts being written off due to the cost of debt collection, we recommend that parties in trade have a clause in their contract which allows them to recover their full legal, or other debt collection, expenses directly from the debtor.

If you need to review your contract, we can help.  You can also read more about how to obtain judgment, or to how to enforce a judgment



Jaenine Badenhorst
Associate Lawyer