If you are like many small businesses, you'll have one major problem making it difficult to recover debts.
It's a problem that has an affordable solution in three moves. The solution prevents the problem.It's a problem that exists before the small business goes to a lawyer to ask for a solicitor's letter or court case work.
That problem exists no matter how you are paid, eg by commissions, fee for service, royalties or something else.
In law that problem is not unfriendly people in the company that owes money.
In law that problem is not necessarily their repeated breach of promises... as the size of the debt increases.
In law that problem is not their unfair behaviour.
To understand the problem through the eyes of the law, we have to go back to the time when the small business and its client or customer did their deal.
Let's listen in to the typical interview that would run at a lawyer's office.
Client: "So how can I recover the money I'm owed?"
Lawyer: "Could you please give me the email, letter, or proposal that the deal was about."
Client: "Well there's this email I sent and here's their reply in which they agreed to pay."
Lawyer: "But that email only broadly mentions what you'll do. There's no exact sum or fee basis stated or date for payment."
Client: "Yes, but they did pay the first three invoices on time, they totalled $25,000. For my later bills they paid in dribs and drabs and now nothing, I'm owed $15,500. In that sum is my profit for the deal."
Lawyer: "You have a problem. A major problem. It is that there is no single document that can be said to be a contract in writing, that at least sets out the deal.
These emails are just an agreement to pay. There are no terms and conditions for that payment. That's a problem. It makes it tougher to convince the other side to pay up fast.
I can take on your case, you do have one. But the amount of time I have to spend to get you that $15,500 or a compromise sum will be a lot longer than if you had a decent contract in writing. Even if we win in negotiations, mediation or court, for sums that size the legal costs can become disproportionate. If we have to sue in court, in New South Wales the Local Court Rules for sums of that size are that you can only ever recover up to 25% of your legal costs. For example you might spend $10,000 in legal costs, get back $12,000 paid to you, and only get $2,500 of your legal fees. That means you've paid net $7,500 in legal fees and got $12,000 payment, which means that for all this effort you get $4,500 net. And that's not even counting the value of your wasted management time."
Yes, this is an ugly situation. It is remarkably common. It's the most likely situation I experience with a new client which is a small business owed $15,500 for a combination of delivered products and services.
The interview discovers the facts of the case and the little there is in existing documents. The identified major problem was the lack of a clear contract in writing. Had there been a solid contract in place the debtor company is more likely to honour its word or feel compelled to do so.
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