Cash flow is the lifeblood of any business. A slow down in cash flow caused by clients not paying their accounts can have a serious impact on your business. Here are our top 10 debt recovery tips:
Terms of Trade – if you supply goods or services on credit then you need good terms of trade so you can take steps to recover the goods or money owed. Your terms of trade should:
- Be tailored to your business – don’t simply copy what someone else is using or use standard terms from the internet as they may not suit your business;
- Contain a properly drafted retention of title clause – this means that if you supply goods on credit you can take them back if you are not paid for them;
- Provide for you to have security over any goods supplied under the Personal Property Securities Act 1999;
- Specifically state that penalty interest and actual legal costs can be recovered on unpaid accounts otherwise you will only be able to collect interest and legal costs as set by the District Court or High Court Rules; and
- Require personal guarantees – if you are supplying goods or services to a company or a trust get personal guarantees from the directors or trustees. If the company or trust has no assets and no personal guarantees are given, any debt recovery action will be a waste of money.
Getting Paid – recovering unpaid accounts can be expensive but here are some lower cost options:
- Disputes Tribunal – the Disputes Tribunal is not a debt collection service so can only be used where the debt is genuinely disputed. If there is a dispute, as opposed to a refusal to pay, then you can make a claim in the Disputes Tribunal. This is very low cost way of obtaining a judgment which can be enforced as if it were a judgment of the court. For more information about the Disputes Tribunal go to www.justice.govt.nz/tribunals/disputes-tribunal;
- Liens – this is the right to keep possession of goods until a debt is paid. A good of example of this is a mechanic who does work on a car. The mechanic can retain possession of the car until paid for the work done. Beware however that you lose the right to claim a lien if you give up possession of the goods;
- Retention of Title clauses – if you have a properly drafted retention of title clause in your terms of trade then you can re take possession of the goods supplied. There are however, a few “fish hooks” and you should seek legal advice to make sure it is done properly;
- Charging Orders – if you obtain judgment either through the Disputes Tribunal or Court then you can obtain a charging order against any land owned by the debtor. The charging order is registered on the title for two years and prevents the debtor from being able to sell or refinance without paying you or coming to an arrangement with you; or
- Attachment Orders – also available if you obtain a judgment. An attachment order requires the debtors employer or WINZ to pay a regular amount to you from the debtors wages or benefit until the debt is paid.
Whatever you do, be proactive in following up unpaid accounts and keep the lines of communication open with your debtors.