Despite threats, my client still won’t pay. Do I wind them up?

Dear Aunty B,

But I have a client who owed us $20,000. In June we agreed to terms of $1000 a month, but they constantly missed payments and still owe us $9000.

Two months ago we got our lawyer to send them a letter saying that if they didn’t pay we would issue them with a winding-up order. They then paid $1000 and we have not heard from them since. They are not answering our calls although the company is still operating.

Do we get the lawyer to issue them with a wind-up order? What happens when the lawyer does? And so far the lawyer’s letter has cost $450!

Any suggestions?

Leanne S,
Brighton Victoria

Dear Leanne,

You too! Yes, legal action can be a costly exercise. Compulsory winding-up is a legal process by which a liquidator is appointed to wind up the affairs of a company. At the end of the process the company is kaput but there is no guarantee that you will get paid.

You have really left this too long. You might have been better calling in a reputable debt collection agency that can work through the collections process with you and hopefully avoid the need for legal action.

To avoid dealing with similar problems in the future, there are some simple steps that you can put in place. Christine Christian, chief executive from Dun & Bradstreet Australia advises:

• Start the collection process the day after the bill comes due. The longer a debt remains outstanding the less likely it is to ever be paid. If an account was to be paid in 30 days and is not, start chasing the bill on day 31.
• Cease the extension of credit on overdue accounts. Although it can be tough to do, particularly for SMEs, you must stop extending credit to customers with overdue accounts.
• Never be afraid to ask for help and don’t wait too long to call in the experts. A reputable debt collector can help you to collect your overdue accounts, leaving you to focus on other areas of your business. Don’t wait till your account is 120 days overdue to ask for help – the sooner you call the experts the sooner you get paid.
• Conduct a credit check at the outset of every customer relationship. This simple step can save a significant amount of heartache by identifying potential customers that can’t or don’t pay on time.
• Get a signed contract. The contract can be as simple as spelling out what you will provide and when; what the customer must pay and when; how disputes are to be settled; and penalties for late payment.
• Monitor your accounts receivables on an ongoing basis. Having a solid process in place to track accounts receivable is vital. Keeping a close eye on every credit account ensures that you are in a position to chase outstanding debts very quickly following the arrival of the overdue date.
• Gradually escalate pressure on your debtors. Issuing a polite reminder as a bill approaches its due date is a smart business practice and a good way to ensure that your bill is front of mind. The pressure you apply should increase as the bill enters overdue territory.

Good luck,

Your Aunty B.