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Debt Collection – Deciding Whether to Take Legal Action

It’s never a good situation to be owed money, especially when you’re a business owner and have outlaid time and money for products or services that have gone unpaid. If you have a debtor that has been unable or unwilling to pay you, it is important to take debt collection action quickly. Robert Wood and Associates are experienced lawyers servicing clients in Ferntree Gully and surrounding Melbourne suburbs. If you have significant debts that you need repaid to you, our lawyers can advise you on the best options, giving you the power to make an informed decision. Read ahead for a few important factors to consider before pursuing legal action.

Have You Offered the Debtor an Enforceable Payment Agreement (EPA)?

An EPA is an agreement for the debtor to pay the debt in instalments, and that the creditor will not commence a legal action or report the debt to credit referencing agencies. If the debtor defaults on the EPA, the EPA and an affidavit verifying it can be accepted as proof of the agreement and judgment can be given.

Have You Tried Mediation?

Mediation may be a simpler way to produce a desirable result. A process where both parties agree to sit down in the same room with a mediator to resolve their dispute, mediation can be seen as advantageous compared to going to court because:

• It’s a more informal process, with less stress on both parties
• The mediator will not decide on how to settle the matter, the parties will reach the resolution together
• The parties have more control over the process and outcome
• It’s a more cost-effective option
• It generally gives a quicker resolution than going to court

A mediation is always conducted “without prejudice” to the rights of the parties to pursue their claims should the mediation fail.

If you Decide to Pursue Legal Action

Can You Prove That You Are Owed Money by The Debtor?

You will need to have documentation of the debt such as an invoice, signed contract, text message, letter or email from the debtor that confirms the debt. If you don’t then you will need witnesses who can confirm the money is owed to you. If the debtor disputes the debt think carefully about taking legal action because there is a risk, that the court may agree with the debtor’s version.

Can You Wait for Your Money?

Obtaining and ultimately enforcing the judgment can take a lengthy amount of time and even after the process, the debt may not be paid in full immediately. The legal process may take a year or longer to see an outcome and then even longer for the debtor to pay up so this is something you must take into consideration in your decision making process.

Is the Return Worth the Investment?

There are many costs involved in taking legal action against a debtor. In addition, the legal process can be very slow, and the chances of collecting the debt owed goes down, the older the debt becomes. You should undertake a careful costs/benefit analysis and determine the ROI of legal action before you proceed. Consider the actual debt amount, the solicitor’s fees, chances of successful collection and court costs in the event the legal action fails. If the ROI is large enough to make legal action against your debtor, you can then proceed.

Do You Wish to Preserve the Relationship with the Debtor?

If the debtor is a long-standing customer or provides a significant portion of your income, you should try to ensure you have exhausted all other recovery avenues before taking legal action. Legal action will most certainly mean you will lose the customer as they would not to use your services or buy your products again.

If you are owed a significant amount of money and aren’t sure about your options, get in touch with the team at Robert Wood and Associates today. Our lawyers specialise in debt collection and we will provide concise legal guidance on your unique situation and explain whether it’s economically and commercially viable to chase your debt. Call us today on (03) 9762 3877 or contact us online to find out more.