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Ideally, customers would pay immediately once they receive your business’ goods or services or an invoice. However, this is not always the case. It is crucial that your business has systems in place to deal with the money owed by a customer who fails to pay you. Doing so ensures that your business: 

  • maintains good cash flow; and 
  • remains operational. 

This article will outline four methods through which your business can get money owed by your customers. 

Talk to the Customer

If a customer owes your business money, you should reach out to them. It may be due to a simple issue, such as:

  • you may have forgotten to send through an invoice; 
  • their automatic payment did not work; or
  • they forgot. 

You can easily remedy these circumstances without engaging in any procedures that could damage your relationship with that customer or cost your business money. As these mistakes are common, it is best practice to have a process in place that notifies your business and the customer when a payment has not been made. This process may involve a:

  • brief email or text message with a reminder a few days after a payment is due; and
  • follow-up phone call a week after a payment is due. 

Alternatively, the customer may be experiencing financial difficulties. You may wish to discuss an alternative payment arrangement, such as paying in instalments. This ensures that your business gets paid without worsening the client’s financial hardship. 

However, if a customer still refuses to pay after you have spoken with them, you may have to consider other options. 

Debt Collection 

Your business could employ a debt collection agency to:

  • buy the debt. In such circumstances, the agency replaces you as the creditor (the party owed the money); or
  • collects the customer’s debt on your behalf. Through this method, any fees that the agency charges you can be passed on to the customer that owes you money. 

Repossession

Your business may be able to regain the money owed through repossession. 

Repossession is only available if your business requires customers to enter into consumer credit contracts and list items as security. If a customer’s payment is overdue, you are entitled to recover this money owed by repossessing the item listed as security. This item may be:

  • the item that was bought with the consumer credit contract, such as a car; or
  • an item that is not connected to the purpose of the loan or sale, but is included in the consumer credit contract. 

Once you have repossessed and sold the security item, your customer’s account is frozen. You cannot add any additional fees to that account. However, if there is still money remaining after you repossessed the security item, you are entitled to use a debt collector or request the rest of the debt to be paid. 

Legal Action

You may wish to engage in legal action to regain the money owed to your business. 

The Disputes Tribunal

You can place a claim at the Disputes Tribunal if the:

  • amount of money owed is $30,000 or less; and
  • debt is in dispute. A debt will be in dispute if the customer refuses to pay due to a disagreement about the goods, services provided or invoicing. 

However, if the debt is not in dispute and your customer cannot pay the amount owed, you cannot take a claim to the Disputes Tribunal. 

The Courts

If the above procedures are not effective or applicable, you may have to go to a court to regain the amount owed. However, going to court is a costly and time-consuming process and should be seen as a last resort.

In New Zealand, the courts can order the debtor (the customer that owes you money) to pay their debt. You can do this through the:

  • District Court, if the debt is no more than $350,000 and it has been less than six years since they first owed the debt; or
  • High Court, for a debt of any amount. However, due to the higher costs, these cases will usually concern debts over $350,000. 

Key Takeaways

Sometimes, due to a mistake or financial difficulties, your business may not receive money owed by a customer for your business’ goods or services. It is best practice to follow up on unpaid debts as soon as possible to remedy any mistakes or come to a different payment arrangement with your customer. However, if your customer still refuses to pay the money owed, you may have to consider:

  • employing a debt collection agency; 
  • repossessing and selling a security item to repay the debt;
  • going to the Disputes Tribunal; or 
  • placing a claim with the District Court or High Court.

If you need assistance in regaining a debt owed, contact LegalVision’s disputes lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is it called when a customer owes you money?

When a customer owes you money, that means they are in debt to your business. 

What do you do if a customer owes you money?

If a customer owes you money, you should first reach out and communicate with them. However, if this is unsuccessful, you may have to consider employing a debt collection agency, repossessing and selling a security item to repay the debt, going to the Disputes Tribunal or placing a claim with the District Court or High Court.

What is a debtor?

A person who owes money is called a debtor. In New Zealand, the courts can order the debtor to pay their debt.

Can you press charges on someone who owes you money?

You can go to court if a customer refuses to repay your business money. However, going to court should be a last resort, as it can be time-consuming and costly. 

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