It takes sacrifice, courage and astute management of risk. When the time comes to reap the rewards, the last thing you want to face is unpaid debts.
It destabilises your capacity for growth and if left unchecked can spiral your business into bankruptcy.
There are a few things you can do to try to prevent bad or unpaid debts from happening in the first place, or if need be, to make the legal process to recover the debt a whole lot easier.
When a customer approaches you for goods or services on credit (to be paid for at a future date), consider this:
Are you selling to an individual or a company? This can be very important in the event that you need to sue to recover a debt.
An individual can enter into a contract in his or her own name (such as “John Doe”), or using a trade name (for example, “John Doe Cleaning Services”). However, John Doe or John Doe Cleaning Services may at some point wish to become incorporated into a limited liability company. After setting up the appropriate company structure and filing the requisite documents in the Companies Registry, he becomes “John Doe Cleaning Services Limited”.
The crucial difference between the two is that as an individual, your personal assets can be taken to satisfy outstanding debts. Not so for the new company, which is now of limited liability.
A limited liability company is considered a separate legal entity, just like an individual. If the company has no assets you can legally seize to recover your debt (eg the name on your invoice/bill/contract does not match the registered owner’s name of the motor vehicle with the company logo you wish to seize), chances are you are going to be left out of pocket.
If you are not familiar with a company, or can’t find it on the local online Companies Registry database, it may be wise to not agree to part with your goods or services unless a known individual (with assets) agrees to pay.
Is there a full description in your Invoice? Something in writing is a must, be it a contract, an invoice or a bill. But more so, make sure that whatever you are supplying to your customer has a full and complete description stated thereon. This can help eliminate creative claims from customers that you did not supply what they requested, which could open up a long drawn out payment dispute.
Is there a due date for payment on your Invoice? Some owners issue an invoice without any indication of when payment is due. It then becomes a matter of interpretation when the invoice is meant to be paid: immediately or within a reasonable time? What is a reasonable amount of time then becomes another issue to figure out. This can all be prevented by simply inserting the date for payment.
Is there a penalty for late payment? The penalties I am referring to are devices such as late payment fees, finance charges, interest and the like. You may have to ask your customer to sign off on this clause, however, incentives to pay and to pay on time ought to be a norm (unless you are in an industry where that is distasteful).
Do you have proof that your invoice was received? As inane as it sounds, this is actually very important and much overlooked. Written proof of receipt of the invoice can prevent claims from the debtor that they never received the invoice, or that they only became aware of the contents of the invoice at a later date and need more time to pay.
Are you keeping track of when the debt becomes statute barred? A party who is owed monies by another under a contract is not entitled to sit on their rights forever. The Limitation of Certain Actions Act, Chapter 7:09 (available online) sets the expiration date for a claim in contract. It is four years from the date the cause of action accrued, that is, the date when your debt became due for payment (another reason why point three above is important!). For example, if on October 1, 2010 you sold $5,000 in steel windows to be paid by October 7, 2010, if you wait until after October 6, 2014 to sue for non-payment, you may very well be out of luck.
It may be prudent to keep a reminder on your computer of when the limitation period is approaching. A general rule of thumb would be to flag these debts to be dealt with by a professional debt collector or lawyer no later than six months before they become statute barred.
It may be worthwhile speaking with a reputable Attorney to get individualised advice on how best to protect your business from some of the risks you regularly face. As the saying goes, sometimes prevention is better than finding a cure. Good luck!
Disclaimer: The contents of this article is for general informative purposes only. It does not provide legal advice and does not create an attorney – client relationship. For legal advice, please contact an Attorney-at-Law of your choosing directly.
Saving your Small Business from Debt
Running a small business is no walk in the park.
It takes sacrifice, courage and astute management of risk. When the time comes to reap the rewards, the last thing you want to face is unpaid debts.
It destabilises your capacity for growth and if left unchecked can spiral your business into bankruptcy.
There are a few things you can do to try to prevent bad or unpaid debts from happening in the first place, or if need be, to make the legal process to recover the debt a whole lot easier.
When a customer approaches you for goods or services on credit (to be paid for at a future date), consider this:
An individual can enter into a contract in his or her own name (such as “John Doe”), or using a trade name (for example, “John Doe Cleaning Services”). However, John Doe or John Doe Cleaning Services may at some point wish to become incorporated into a limited liability company. After setting up the appropriate company structure and filing the requisite documents in the Companies Registry, he becomes “John Doe Cleaning Services Limited”.
The crucial difference between the two is that as an individual, your personal assets can be taken to satisfy outstanding debts. Not so for the new company, which is now of limited liability.
A limited liability company is considered a separate legal entity, just like an individual. If the company has no assets you can legally seize to recover your debt (eg the name on your invoice/bill/contract does not match the registered owner’s name of the motor vehicle with the company logo you wish to seize), chances are you are going to be left out of pocket.
If you are not familiar with a company, or can’t find it on the local online Companies Registry database, it may be wise to not agree to part with your goods or services unless a known individual (with assets) agrees to pay.
It may be prudent to keep a reminder on your computer of when the limitation period is approaching. A general rule of thumb would be to flag these debts to be dealt with by a professional debt collector or lawyer no later than six months before they become statute barred.
It may be worthwhile speaking with a reputable Attorney to get individualised advice on how best to protect your business from some of the risks you regularly face. As the saying goes, sometimes prevention is better than finding a cure. Good luck!
© Neela Ramsundar, LL.B (HONS), L.E.C is a Civil Litigation Attorney at Law & Certified Mediator
Disclaimer: The contents of this article is for general informative purposes only. It does not provide legal advice and does not create an attorney – client relationship. For legal advice, please contact an Attorney-at-Law of your choosing directly.