Nearly all business owners will at some point be in a situation where they have rendered goods and services but have not been paid for their effort. When this happens the business owner will have to decide whether to write off the debt or to try to collect it.
Factors to consider for debt recovery
Normally the deciding factors are:
- The amount outstanding.
- The costs of recovering the debt.
- The effort that would be needed in order to recover the debt.
If, after considering the aforementioned factors, one decides to collect the debt there are various ways to do so.
The debt recovery process
The recommended starting point when dealing with a debtor would be a letter of demand. Depending on the type of transaction from which the debt arose, a letter of demand would usually contain the following items:
- A reference to the goods and all services that were delivered.
- A reference to the amount of time that would ordinarily be given for payment.
- The amount outstanding.
- A demand that the outstanding amount be paid within a set amount of time.
The agreement will usually dictate the amount of time given to the debtor to make payment in the event of a breach. When the agreement is silent on this point, a reasonable period would apply. Depending on whether the debt stems from a credit transaction, certain additional requirements would apply.
If, after a letter of demand, the debtor has still not made payment, the creditor would have to decide through which platform it intends on pursuing the debt.
Choosing the right court for commercial recoveries
For debts smaller than R20,000, the creditor, if it is a natural person may approach the Small Claims Court. The Small Claims Court follows an informal procedure with less onerous processes than a normal court may require. Legal representatives are not allowed to represent a debtor or creditor at the Small Claims Court, and the parties thus must state their case in person.
If the debt is between R20,000 and R200,000, a creditor might issue summons for the recovery thereof through the Magistrates Court. The Magistrates Court is a popular forum for debt recovery, as the costs associated with litigation in the Magistrates Court are not as high as in the High Court. The Magistrates Court does however have some drawbacks in that high volumes of cases might result in significant delays in the matter.
If the debt is between R200,000 and R400,000 the party may wish to approach the Regional Court. The Regional Court is similar to the Magistrates Court, but the volume of matters going through the Regional Court is significantly lower.
If a person has a claim over R400,000, the claim will usually be brought in the High Court. The High Court is highly specialised to deal with these claims and the parties can be assured that their matter will be in good hands.
Depending on the type of transaction, there will also be other avenues for the recovery of the debt, such as the Rental Housing Tribunal or an Ombudsman.
Using arbitration for debt recovery
Another option available to litigants is arbitration. Of all the forums, arbitration is the most flexible and the parties have the greatest say in the process that is followed. Depending on the cooperation of the parties, an arbitration is usually also significantly quicker than pursuing the debt through a normal court.
In an arbitration matter the parties decide on an arbitrator, who will then hear the parties and/or their legal representatives and make a ruling. The decision of the arbitrator is usually binding and enforceable, and is the equivalent of a decision in any of the other courts. The one downside to arbitration could however be that the parties may incur significant costs for the matter to be finally determined.
Speak to a commercial recovery expert
Should you require guidance on the correct debt collection procedure for your business, feel free to contact our Commercial Recoveries team at Abrahams & Gross in Cape Town. We collect both disputed and undisputed debts in both the public and private sectors, and are available to cater to all your claims and recovery needs.
For assistance with Commercial Recoveries
The articles on these web pages are provided for general information purposes only. Whilst care has been taken to ensure accuracy, the content provided is not intended to stand alone as legal advice. Always consult a suitably qualified attorney on any specific legal problem or matter.