Know your debtor
It's important to know who you are going into business with, especially when you are supplying goods and services without collecting payment upfront.
In August 2013 the State Government launched a name and shame campaign, listing the details of major debtors registered at the Fines Enforcement Registry on its website.
To be named on the website, the debt must be significant and the debtor must not have entered into a formal agreement to pay the outstanding debt.
A little bit of research can go a long way in determining who you should go into business with and what your terms of trade should be.
Tips on how to reduce bad debts
For tips on how to reduce bad debts or a review of your terms and conditions, please telephone our team on +61 8 9220 4440 or send an email to email@example.com.
Can I claim my costs?
In Western Australia, whether you can recover legal costs after you commence court proceedings will depend on the size of your debt. Where you debt is small, you should carefully weigh up the costs of pursuing it against your likely return.
Debts over $10,000
If you obtain a court judgment against the debtor for $10,000 or more, the court will generally order that the debtor pay your legal costs. However, the amount you can claim from the debtor is limited by a regulatory scale. We estimate you will generally be entitled to recover about 70% of the fees we charge you and most of your disbursements (i.e. court filing fees and sheriff fees).
Debts under $10,000
If your debt is under $10,000, you cannot recover any of the fees we charge you unless there are exceptional circumstances. Such cases are very rare. This rule applies even if your contract says you are entitled to be indemnified for legal costs.
You are entitled to recover most of your disbursements and some of the legal costs you incur in enforcing any judgment you obtain (for example, for means inquiries and property seizure and sale orders).
Collecting small debts
You’d be surprised how often we are asked to collect small debts. The practical reality is that small debts are usually not worth collecting, not least because you normally cannot recover legal costs for debts less than $10,000.
As a general rule, if the amount of the debt doesn’t justify the expense of a $99 demand letter, it isn’t worth your time worrying about.
What can you do?
We don’t often promote our competitors’ offerings, but you might want to send these debts to a commission-based debt collector. They will usually try to irritate your debtor by sending regular letters and text messages. This type of campaign is rarely effective, but at least you don’t throw good money after bad.
Avoiding bad debts
It can be as simple as asking for payment before delivering the goods or performing the service. A strong set of terms of trade is essential to making sure your work gets rewarded. We can review your existing terms or prepare a new set for you.
Where is my debtor?
When you commence court proceedings, you will usually need to serve the summons on your debtor personally. It’s easier for a company – most of the time you can just post it to the registered office. But for individuals, you need to know where they live or work to hand them the document. The more information you can give us, the better chance you have of serving the summons.
There are plenty of ways of finding you debtor. It is just as simple as calling them to ask for an address!
You can also try:
Landgate – if your debtor owns land in Western Australia, you can search Landgate’s records for the address of the property. We perform this search for you as part of our General Procedure Claim product.
Electoral Roll Search – the Australian Electoral Commission and the Western Australian Electoral Commission keep the names and addresses of everyone who is enrolled to vote at Federal and State elections respectively. You must attend a WAEC or AEC office to search their records.
Internet searches – finding your debtor on Facebook might lead you right to them! You can also try searching their name, email address and telephone number on websites such as Google and LinkedIn.
White pages – search your debtor’s name, you might find both their address and telephone number!
ASIC search – you can search ASIC’s records to see if they are a company officeholder or shareholder (for private companies only). ASIC will usually only have an address for officeholders.
We recommend you see us for a 30 minute consultation ($198) where we can review the situation and advise you on alternatives (for example, substituted service).
Who is my debtor?
It sounds obvious, but working out who owes you the money is essential before you issue a demand letter or start court proceedings.
Generally, the person who owes you the money is the person who engaged you to provide the goods or perform the services. A good starting point is to review any written agreements, correspondence, purchase orders and invoices to identify who actually engaged you.
Individuals, companies and partnerships
Your debtor will usually be an individual or a company.
You can usually identify a company from the words “Pty Ltd” (private company) or “Ltd” (public company) in its name.
Where an individual (commonly known as a ‘sole trader’) has engaged you, they are responsible for paying you.
A partnership is a relationship between two or more individuals or companies. If you have been engaged by a partnership, you can usually pursue all the partners personally for payment.
It is important to distinguish between the legal entity (e.g. the individual, company or partnership) who engaged you and the trading name they used.
Many legal entities conduct business under a trading name. A trading name is just a label, for example, “Get Paid Solutions” is just a trading name. You cannot sue a trading name – you must sue the entity behind it.
You can better identify your debtor by making simple inquiries such as:
- Search their business name or Australian Business Number – businesses are required by law to include their trading name (if any) and ABN (if any) on any receipt or order for goods or services. You can find out who the trading name and ABN belong to on the Australia Business Register.
- Search the ASIC register for companies.
We recommend you see us for a 30 minute consultation ($198) where we can review the documents and advise you on who to pursue.
When you commence court proceedings or issue a means inquiry, you will need to hand the summons to the debtor. It is insufficient to email or post them. Experienced debtors know the system and will do their best to avoid being served.
If you cannot find your debtor, but have some means of communicating with them, the court may make substituted service orders allowing you to serve the summons using an alternative method. For example, the court may allow you to send the document by email or hand it to a friend or family member who has contact with them. In the past, the court has even allowed us to serve documents through a Facebook message and by SMS!
To maximise your chances of getting an order for substituted service, you should keep a record of when and how you communicated with your debtor (for example, telephone numbers and emails addresses).
We recommend you see us for a 30 minute consultation ($198) where we can review the situation and advise you on the likelihood of getting an order for substituted service.
Debt collectors vs lawyers
As a debt creeps across your aged debtor statement, you might wonder who you should engage to assist you – a lawyer or a debt collector? In almost all situations, you will be far better off wioth a competent lawyer.
What are debt collectors?
A debt collector is a glorified middleman. His only tactic is to demand payment of your debt, whether by telephone, letter or carrier pigeon. If this doesn't work, the debt collector will engage a lawyer – at your cost. A debt collector cannot commence legal proceedings or give you legal advice.
For his apparent assistant in standing between you, your debtor and your lawyer, the middleman will usually take an unhealthy part of your winnings.
Cut out the middleman
A lawyer can handle your debt collection matters from start to finish, saving you time and money.
Get PAID Solutions is provided by Birman & Ride, an established Perth law firm. By engaging us, you avoid commissions, can select from our competitively priced, fixed fee services and benefit from our over 35 years of experience.