In my Part 1 blog post (https://thelegalstuff.co.za/2020/01/26/how-to-deal-with-non-paying-clients-part-1/) I discussed dealing with non-paying clients in general. In this post we will deal with the legal steps to take when dealing with non-paying clients. This can be quite overwhelming because there are actually quite a few options available to you. But you will have to ask yourself the following questions first. This will help you to decide what is going to be the best legal route for you. Or whether taking the legal route will be an option at all:
Do you have a signed contract with the client?
How big is the amount you’re claiming for?
1.Do you have a signed contract
This is a very important starting point when deciding whether to take legal steps and if you should even take legal steps. The reason is: if your claim is related to money then it can very easily proven if based on a written agreement. For example: You were supposed to deliver X, by a certain date and in exchange the Client agreed in writing that upon receipt he would pay you Y. You performed and according to the contract he didn’t.
If you don’t have a contract on the other hand then having to rely on various emails, whatsapps and conversations. This is much more difficult when wanting to prove your claim. Confusion arises as to what you were supposed to deliver and then also the amount that the client needs to pay. In short if you don’t have a contract in place – serious consideration would have to be given to how sure you are of your claim and can you prove it.
Again HAVE A CONTRACT! Really this solves a huge amount of headaches in the long run.
2. The amount you are claiming for:
This is the second biggest question that an attorney will ask you. Reason being: to take certain legal steps will require you to appoint an attorney to act on your behalf. Unfortunately, the cost of an attorney may outweigh that of a claim. In my opinion if your claim is less then R 50,000.00 it would not be worth taking formal legal steps. Meaning to go to court and suing the socks off your client (there are other ways, so keep reading)
Yes – it is true that you can claim your attorney costs from the client. But you need to remember that you are going to have to pay the attorney first. Then sue, then win and the judge needs to award costs in your favour on an Attorney and Own Client scale (that means all your costs). And then lastly your client needs to willingly pay.
If he isn’t willing to pay, you need to enforce the order, which will cost more money. You can see why I am saying that you need to be sure that your claim outweighs the cost to the attorney.
But it is not all bad – there are ways and means to take legal steps:
1.Small Claims Court
If your claim is less than R 20,000.00 you can sue a client through the small claims court and no attorneys are allowed into this court. In other words you can take the formal legal steps yourself. Unfortunately the relief is not open registered businesses but only sole proprietors and natural person. If you want to read more about this you can visit the site: https://www.justice.gov.za/scc/scc.htm
This is a type of legal recourse that is basically a way of alternative dispute resolution – meaning you are trying to resolve disputes outside of court. The parties would have had to agree to this method: either when the dispute arises or you can add this clause into your agreement. The clause will then deal with how an arbitrator is appointed (the parties can choose or make use of the Arbitration Foundation of Southern Africa or the Association of Arbitrators, when, where etc.) as well as when and where the arbitration is to be held.
This is a helpful and speedy way in resolving the matter. The arbitrator will be independent and will be charging a fee, but it will be significantly less than a court and attorney. Your matter will then be heard privately at a chosen venue and the arbitrator’s decision will be binding. The order can be appealed in the appropriate court.
You will also have the choice of going to court. As explained this can be a costly exercise to do. Again, your agreement can make provision for taking a matter to a specific court i.e. the Magistrate’s court or the High court. The reason is that an attorney will base there fee on the court that they are attending. You are more likely to pay less for a Magistrate’s court than a High Court case, depending on if you have a fee agreement in place with your attorney. To resolve matters may not only be costly but also lengthy.
4. Settlement outside of Court
Your attorney will in any event try and settle the matter outside of court to reduce your legal costs. But don’t be afraid to deal with this by yourself. A Settlement Agreement or an Acknowledgement of Debt can be concluded to secure the new payment terms and amount between the parties. If your client then fails the new payment terms, the payment terms may enforced by a court order.
You can contact your client and suggest that there are differences between the two of you but what if the matter settled on an agreed amount. This can be paid by way of an Acknowledgement of Debt, AOD, (monthly instalments or however your client can make payment) or a Settlement Agreement.
To summarize, there are always various options available to you – don’t ever feel that your business and income is not important enough to go after. But in the same breath, pick your battles – because trust me there are going to be quite a few on your road to success.