By Arinda Truter, Junior Associate, Schoeman Law Inc.
You probably know them all… the “eager beaver” client; the “overly persistent” client; the “difficult” client; the “know-it-all” client; the “nice-to-have cooperative” client. Be your preference in client as it may…. the worst client of them all is the “bad payer” or “late payer” or “no pay at all” client.
Unfortunately, as most business owners will tell you, these types of clients are generally unavoidable. What is more, at some point every business owner has experienced the stress associated with clients who don't pay when they are supposed to. It can even impact your cash flow and your own ability to pay your suppliers. So, the consequences are not just stress and the impact on your own cash flow, but can be much more far reaching – it can tarnish your own reputation.
So what legal options do you have to collect on an overdue account?
1. Establish and follow your own / internal collection process
This should include a follow up email or two, and a personal call from the person working on the account in question. Sometimes, transparent and clear communication is crucial. If this fails, you should escalate the efforts.
2. Pend further work or delivery
If the above fails, or in combination with the above, limit your risk. When you do this will ultimately depend on the amount already overdue and circumstances surrounding the situation. In many instances, the bad payer needs your product or service badly – so you have some leverage you can apply here.
3. List the client on the credit bureau
If the above fails, you can notify the client that should he or she not settle the account by a certain date, you will proceed to list them as a defaulter with the credit bureaus. This listing can only be removed by yourself or automatically within 2 years. If you are not sure how to go about doing this, you should contact an attorney to assist. Having an untainted credit record is invaluable in today’s economy and you are therefore likely to settle the matter without further steps being required.
4. Enter into settlement negotiations
In many instances clients don’t pay because they simply can’t. So, when you suspect this, we strongly recommend that you seek legal advice in order to determine if your suspicions are true. If they are, you may need to consider settling the matter for a lesser amount or by accepting instalment payments. At the end of the day, if the business or person owing you money simply does have the resources to pay – you may end up throwing good money after bad. Where a settlement is reached – ensure you obtain the advice of an attorney so you can construct a written agreement to that effect that will not come back to bite you in the future.
5. Small Claims Court
If you wish to approach a court but the amount is relatively small – consider the Small Claims Court. Small Claims courts offer a quicker and easier way of resolving disputes that involve amounts limited to R 15 000.00. Anyone, except juristic persons such as Companies and Close Corporations, may institute a claim and you do not need an attorney to assist you with the matter. It is a very cost effective approach to get the money that you are owned should it fall within the jurisdiction of the court.
6. Appoint an attorney and start litigation proceedings
This will be a last resort. We typically suggest this when all internal or amicable efforts have failed and if following proper consideration, there are no reasonable prospects of practical success (i.e. to actually get the money).
7. Ok – the money is in – what now?
Once the debtor situation which lead you here in the first place has been resolved, we recommend revising the way in which you engage your clients. This may call for a complete revision of your payment terms or even the way in which you sell. It is important that a specialist attorney assists in this process.
So, contact us today if you need to address any debt concerns in your business or just want to streamline your existing processes to eliminate potential issues.
Arinda Truter is an admitted Attorney of the High Court of South Africa, as well as a Notary Public. She is a Junior Associate at SchoemanLaw Inc. Attorneys, Conveyancers and Notaries Public in Cape Town and has experience in various aspects of law as well as litigious experience. Visit www.schoemanlaw.co.za for more information or email enquiries@schoemanlaw.co.za.