The legal and practical challenges to enforcing payment through the court system (which is slowing down due to social distancing requirements and other problems brought on by coronavirus and may slow down further) while also dealing with the government changes at the moment means that businesses need to be thinking of different ways to collect payment, or to protect themselves as a matter of urgency.
Given bankruptcy notices and statutory demands are likely to be ineffective right now given the six-month period to comply other options need to be considered.
Adding to this difficulty is that the courts are slowing down on the processing of standard debt recovery matters meaning it takes longer to obtain a judgement than usual. The courts are also indicating that a number of the other enforcement mechanisms will not be actioned either.
For example, warrants for seizure and sale of property will not be actioned for a period of time in some courts already. Even if such a warrant could be obtained selling the property of a debtor by way of public auction will be very difficult given the restrictions on COVID-19 enforced social distancing now in effect which impact on house inspections and auctions.
It also makes good business sense to assist your customers as much as possible during the current crisis.
We have set out a few options that are still open for companies to encourage payment that can be put into place.
Your terms and conditions in the credit agreements may allow you to caveat over the property of the debtor or the guarantor. We can review those terms to advise you if you have that ability and if you did not have these terms then they can also be amended.
Currently, you are still able to lodge caveats and take the necessary court action to protect that caveat to ensure your interest in the property is secured. Taking further action to sell the property will be difficult under the circumstances but this at least helps to improve the longer-term recoverability of this debt.
Asking for security
Depending on the terms and conditions of your credit agreement and guarantee you may be entitled to ask for a mortgage to secure any current and future debts the debtor may have with your business.
If you are able to obtain a registered mortgage, then the recoverability of the debt over the longer term will be greatly improved.
Your credit agreement or terms and conditions of sale may allow you to register a security interest over the goods you have supplied or other security interests on the Personal Property Security Register.
You still need to register that interest properly. If the interest hasn’t been registered, then you will need to get advice to deal with any time limits you may have missed.
Discount for early payments
While not ideal, offering a discount to encourage early payment may ensure that your account gets paid by debtors who are trying to control their cash flow as much as possible.
The key to such a proposal is that it be clearly expressed and nonnegotiable. If it is a 5% discount for payment within the next seven days, ensure that you adhere to such a timeframe and act accordingly. If the payment is not made, then the full amount will remain due and payable.
As a legal matter that sort of agreement usually needs to be expressed in a Deed. To give reassurance to the customer we can assist you in preparing that Deed if necessary.
If you don’t have current terms and conditions with your clients, or those terms do not allow you to take the actions mentioned in this article you can still change this. For customers who do need help part of any agreement should be that they either sign terms and conditions that include these clauses or amend the current terms to allow you to take those actions.
Explanation to customers
A lot of these steps above are about trying to improve your longer-term recoverability of the debt. This can be explained to customers and it can even be included in the agreement that you will not take any further action after obtaining that security for a certain time period (similar to standing down your employees which we have advised on previously).
Chase debts early
Some customers will be able to pay you and that money should be collected as soon as possible. Early reminders to clients and customers will help to improve payment and encourage those with problems paying to let you know sooner.
That information can then be used to decide if further credit will be provided, if further work will require upfront payment or one of the alternatives set out above is appropriate.
If you would like any further advice on these options, please do not hesitate to contact us. We will be able to review your terms and conditions, advise you what rights you have and help you with the next steps to recover and secure your debts in these current conditions.
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