As a business owner I am occasionally confronted with bad debts, fortunately it is rare but does occur and a recent debt collecting episode inspired me to write this post.
A client of ours who was with us for about three years suddenly decided that they did not want to pay one of our invoices. Not because of anything of our doing but because the client they were working with dropped them mid-project for various reasons. I can’t go into the complexity of this but essentially it was a classic case of big business bullying small business and we were made to be a scape goat. Fortunately we have a solid terms of service agreement signed by all our clients which covers us for all work undertaken but in cases like this still can leave us out of pocket for the excellent work me and my team produce.
So what are the options. You can either roll over and take the financial hit or you can fight for your rights. This is where you have to be careful and think with your business head not your personal head. For me I am big on principle, if we provide a quality service we should be paid for that service, so in this particular case I opted to go the debt collection route. This is generally the way I role.
Debt collectors do a great job if you find the right one. Always ask around for referrals rather than just googeling and picking one at random. Don’t fall for the “no win no fee” line as in my experience this has not been the case, mainly because we end up going to court. In this particular case this is exactly what we did and had our case heard at the Sydney small business claims court. The original invoice was small only $1500, we recovered these costs but to do so cost us $2500 in legal fees. We opted for our debt collectors lawyers to represent us, a smart move, they decided to represent themselves. They had $0 legal fees, lost the case which they would have done whether they opted for a lawyer or not, so ended up just paying the original invoice amount plus a small amount of interest on the debt.
As you can see it doesn’t always make financial sense to pursue these matters. If we had just given up and waived the invoice we would have lost alot less financially than we actually did by pursuing it. But, and this is a big but, I knew we were in the right, we had done nothing wrong and was not prepared to be rail roaded by a larger company with idle legal threats. We stuck to our guns and fought for what was right and won but at a cost to us.