UNPAID INVOICES

The next topic in Industry Legal article series, based on Emma Dalley’s presentation at the AAAA Expo

Unpaid invoices can impact on cashflow and, if a vehicle remains at the workshop pending payment, may impact on productivity due to reduced available workspace.
There are several ways of addressing unpaid invoices and tools to assist with payment. First, we will consider the repairer’s lien, followed by general options for unpaid invoices, after which contractual options that may be available under the trading terms for the business will be considered.

Repairer’s lien and contractual lien
Briefly, the repairer’s lien is a right available at common law that enables a person who improves goods to retain the good until full payment for the work is made. A vehicle can be held by the business under the repairer’s lien until payment is made where:
• a repairer receives the vehicle for repair/improvement; and
• the vehicle has been provided by the owner or a person with the owner’s authority; and
• the vehicle has been repaired/improved (or increased in value), by a person with the required skills; and
• possession of the vehicle has remained with the repairer at all times.
A contractual right to a lien can be broader than the repairer’s lien (for example, a contractual lien can include the right to hold a vehicle where only an assessment (and no improvement) is made), such a lien may be included in the terms of trade used by the business. This is a brief overview of the repairer’s lien, please contact Industry Legal if you have any questions.

Options for unpaid invoices
There are several options available to recover a debt, there may be several factors that inform the option the business decides to take. The business may assess options from the perspective of available legal rights and commercial considerations, including the size of the debt, available contractual and legal options, and time away from the business to address the debt.
Options to recover a debt include:
• follow up the customer, they may have forgotten to pay the account;
• issue a letter of demand for payment;
• engage a debt collector;
• sell the debt (noting that when selling a debt, the business assigns the debt to a new entity and will not receive the entire amount of the debt owed);
• if appropriate, consider issuing a further demand or, if appropriate in the circumstances and the requirements are met, consider issuing a statutory demand (threshold debt amounts and other requirements apply);
• if the business did not recover the debt (for example, after sending a letter of demand), consider commencing legal proceedings (legal proceedings may be costly and such costs may exceed the debt amount itself, consider also the customer’s capacity to make payment (enforcement action may need to be taken, which may be costly), and if there is sufficient evidence to prove the claim, ie. evidence regarding the service/parts the business agreed to supply and the amount the customer agreed to pay for the service/parts); and/or
• negotiate a commercial settlement (for example, establishing a repayment plan or accepting a reduced amount).
If the vehicle is ready for collection and the customer cannot be contacted or they will not collect the vehicle, consider if the vehicle may be disposed of under the uncollected goods legal regime applying to the state or territory in which the business is located.

Contractual options
Options that may be available under the terms of trade for the business may include (check the terms of trade for the business for availability):
• apply the interest stated in the terms of trade to the debt and let the customer know the interest is being applied;
• if storage fees may be charged under the terms of trade, let the customer know that storage fees are being charged (note that the right of the business to charge storage fees should be agreed by the customer before services are supplied and the repairer’s lien does not give the right to charge storage fees);
• if there is a general lien under the terms of trade that may be relied on to hold the vehicle until payment is made, use this option (available in addition to the repairer’s lien at common law but may be broader (see above)); and
• if the terms of trade allow the business to seek the cost of debt recovery from the customer, consider recovering those costs.

Trading account
If you have terms of trade for your trading account, then, in addition to the above contractual options that may be available, consider if any of the options below are available under the terms of trade for the business:
• is there a director’s guarantee in respect of the trading account, under which the director has guaranteed the obligations of the trade account holder? If so, the business may be in a position to make a claim against the director of the trading account holder;
• do the terms of trade allow the business to suspend or cancel the trading account if a payment is overdue? If so, consider steps to suspend or cancel the trading account; and
• for the sale of parts, is there an option to register a purchase money security interest (PMSI) on the personal property security register in relation to that trading account? If so, and there is a PMSI registered, then this will provide the business with greater protection in the event the holder of the trading account is in financial difficulty.

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Industry Legal provides advice to members on commercial law matters.
If you have any questions relating to the above information, please contact Industry Legal on 1300 369 703 or aaaa@industrylegalgroup.com.au

This document is intended for general information purposes only and should not be regarded as legal advice. Please contact Industry Legal if you require legal advice.
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