It’s important to address disputed debt as soon as possible. This will more likely lead to a positive outcome and enable you to rescue your business relationship.

You cannot recover a debt via a statutory demand if the debt is disputed. And, of course, you need cash to continue to operate, so it’s important to find a solution quickly.

Below, we outline the three steps to settling disputed debt:

First: Preventing debt disputes with strong in-house credit control and terms of trade

Of course, the best way to minimise disputed debt is to avoid the situation where disputes can arise in the first place. Many disputes can be avoided by good record keeping. Clear terms of trade and customer credit limits that are enforced will go a long way to ensuring you’re never put in a difficult situation again.

Terms of trade should be reviewed periodically (at least once a year) to ensure they’re still meeting your current needs. You may wish to amend your payment terms, default provisions and PPSR guidelines. You might also consider insisting on taking personal guarantees. The ability to register a security in your supplies provides you remedies in the event of failure of your customer.

Second: Try to reach an informal debt settlement

Chasing disputed debt through the courts can be a costly process, sometimes far outweighing the benefits of retrieving your money. Dragging a customer through court will also irreparably harm your relationship with them. The best (and usually most cost-effective) solution may be to reach an informal debt settlement or compromise with your customer.

When offering a settlement, consider the customer’s grievance with the debt, as well as their ability to pay. What solution can you offer that ensures both parties come out satisfied?

You may wish to seek advice from a professional firm specialising in business debt settlement, such as McDonald Vague. We can help advise you on a settlement that will ensure the best possible outcome.

Third: Legal proceedings

If you’re not able to reach an agreement about the dispute, your next recourse is to undertake legal proceedings against the debtor. Depending on the amount being contested, you have different options:

Disputes Tribunal: for disputes up to $15,000 (or $20,000 if both parties agree to extend the jurisdiction). Filing fees for the Tribunal are on the low side and both parties represent themselves, making this a cost-effective solution if legal proceedings are required. An order or agreed settlement made by the Tribunal referee is enforced against the debtor in the same way a District Court order would be.

District Court/High Court: The District Court will deal with claims up to $200,000, and any claim higher than this will go through the High Court. Applications for proceedings at these courts are similar, and both require more expert skills, time, and research than the proceedings for the Disputes Tribunal. We recommend you seek out legal advice before issuing proceedings in the District or High Court.

If you are struggling with disputed debts contact us now.