How can I get my clients to pay my bills on time? Part 2 – Letters for demand and security of payment plans
11 Nov 2019
- Business Law
When you are running your own business, the last thing you need is to have clients who aren’t paying their bills. But what can you do about it? In this article – the second in a series about debt recovery for small business – Emily Shoemark and Gene Schirripa discuss two debt recovery tools: letters of demand and security of payment plans.
Letters of demand
A letter of demand is usually the first step in any debt recovery process. Before incurring the time and cost of any formal debt recovery, a letter of demand can be an effective way to show a debtor you are serious about recovering the debt.
A good letter of demand should:
- make it clear what the debt relates to
- set out any relevant background
- have the overdue invoices attached
- include a deadline for payment and state that, if the debt is not paid by that date, then legal action may be taken.
As with any formal debt recovery option, it’s a good idea to start with a letter of demand. You can often avoid court because the debtor will pay or offer a payment plan when they receive a letter on legal letterhead. Courts will also be looking to see that you have made a genuine attempt to resolve the dispute before taking formal action.
Security of payment plans
A security of payments claim is governed by legislation in each state. In the ACT it is the Building and Construction Industry (Security of Payment) Act 2009.
This process is there to allow subcontractors to pursue payments owing by head contractors in a relatively quick and simple process. The process is designed to streamline and simplify claims by bypassing the courts and having a dispute resolved by an approved adjudicator.
Anyone who carries out construction work or supplies goods and services under a construction contract can make a security of payments claim. This includes:
- contractors against principals/developers
- subcontractors against contractors
- suppliers against customers
- plant and equipment hirers against clients
- consultants against clients.
You have 12 months from when the work is done to make a claim.
The first step in the process is to have the following a statement on your invoice: ‘This is a payment claim under the Building and Construction Industry (Security of Payment) Act 2009’. We recommend having this on all of your invoices.
The other party then has a set period in which to either pay the debt or dispute it. If the debt remains unpaid, you can then apply to an adjudicator for adjudication in writing, setting out the claim.
The debtor has a chance to respond in writing, but if they miss the deadline there is no option for extension. The adjudicator will then make a decision based on the written claim and response.
If you are using this option for debt recovery, it’s important to be very clear on the timeframes as they are strictly enforced. It’s also important to include all relevant information and evidence when making the claim because you are unlikely to get another chance to do so.
How can we help?
If you’d like to find out more about ways to ensure that your clients pay your invoices on time – and when they don’t, how to go about debt recovery – contact our Business Law team on 02 6285 8000 or by email.
You can read Part 1 in this series – Terms and conditions – here.