The words debt and dispute start with the same letter and are often written in the same sentence. Yet when you believe you are owed a debt, there may be a debtor giving every excuse in the book not to pay.
When it comes to the disputed and unpaid debts, what is the difference and what are the consequences of each?
The easiest way to refer to this is that disputed debts can’t be collected, but late payments or unpaid payments can be chased.
If your debtor disputes that they owe a debt, there are certain steps they need to follow to prove this.
Firstly, they need to communicate they dispute the debt – either to your business or your debt collection agency if you have one. It needs to be in writing.
If the debt is $30,000 or less, they can take a claim to the Disputes Tribunal, and ask them to make an order that they don’t owe the disputed amount. https://disputestribunal.govt.nz/can-help-with/
If you as the business owner who the debt is owed to disputes the debt, you have options. At this point you can negotiate with the debtor about the debt and offer payment plans or an agreement to pay the debt. This is often the best route forward as it ensures healthy client relationships in future.
If things have gone beyond the niceties, you have the option to bring enforcement action against the debtor and take court action to recover the debt. This is called civil enforcement. You will manage the civil enforcement process yourself, and you may have to pay fees.
It pays to remember you can only begin civil enforcement when two conditions are met i.e. that a court or tribunal has found in your favour and orders the debtor to pay your civil debt and that 48 hours has passed, and the debt has not been paid on time.
The thing to remember about civil enforcement is that as the creditor you need to do the hard yards yourself, including selecting the enforcement actions you think are best for your situation, applying to the court to carry out the actions, giving the court the information needed to support the claim, and of course paying the associated fees for each enforcement action.
Given this process which can be timely and costly, you do need to consider whether this is the best course of action. Does this client owe you a large amount of money? Do you feel you have a strong claim? What is the likelihood of their ability to pay?
If you’re in doubt about whether your current debtor is merely delaying or disputing debt, open the lines of communication and talk to them about their intentions. Often misunderstandings can be cleared up without the need for costly and time-consuming court action, retaining your brand reputation at the same time.
Another important piece of advice to avoid all of the above is to work with a debt collection agency like Guardian Credit early on. Specialists in getting unpaid invoices paid, their success rate can avoid a lot of court angst – and cost.
