Not getting invoices paid on time is one of the major problems faced by most SME and MSMEs. Invoice collection and collecting accounts receivable is the key to maintaining the cashflows of a business and maintaining its financial stability. Overdue invoices that don’t get paid and payment disputes invite legal solutions including arbitration and legal action.
But sometimes, legal solutions are the only recourse to solving this issue of overdue invoices. From the perspective of maintaining the viability of your business, it becomes necessary to undertake prompt legal action. Legal solutions help you to recover your funds and ensure the financial stability of your business. We explore in the article below, the legal options for small businesses facing nonpayment and effective strategies for invoice recovery. Your customer must understand the consequences of not paying the invoices.
Taurus Collection India is a receivables and debt collection agency with a global presence. We are a specialised company that facilitates collection of receivables and unpaid invoices on behalf of our clients. We contact the defaulting debtors, remind them of their financial obligations, and use our field or call agents to collect the funds owed to our clients. We also have a battalion of experienced, in-house lawyers who can secure a legal solution if the problem becomes unmanageable by traditional methods. Our ethical actions help to improve your cashflows and ensure financial stability for your business while maintaining your valuable client relationships.
Understanding your rights as a creditor is important to recover your unpaid invoices. You can follow these general steps before you launch into legal action.
Review the contract and terms
Make sure that your agreement is watertight with clear and transparent terms stated in unambiguous language including penalties for late payments, late fees and interest, due dates and the procedure for solving disputes.
Verify compliance:
Ensure that you have met all contract conditions regarding the delivery of the product or service satisfactorily.
Send payment reminders
You must check and ensure that payment reminders have been sent regularly whether through phone calls, emails or letters. All these measures ensure that you are being professional before escalating to legal recourse.
Issue a formal demand letter or send a final demand letter for payment:
A formal demand letter clearly states the following:
Either you or your lawyer can write this letter.
Consider hiring a professional collection agency:
Hire a debt collection agency when conventional measures of follow-ups have failed. Taurus Collection India is professionally qualified, ethical and well versed in collecting the overdue receivables. We also have competent in-house lawyers to bring speedy legal resolution to your legal hassles.
Consider alternative dispute resolution solutions
This includes measures like mediation or arbitration. The difference between mediation and arbitration is that mediation uses a third party to resolve disputes, and arbitration uses a neutral arbitrator.
Filing a lawsuit:
Here, we deal with how to file a lawsuit for unpaid invoices. This is the last decisive measure to resolve the issue of overdue invoices. For all amounts receivable that is lower than Rs 20 lakhs, you could file the same in the district court or small claims court. The court issues a legal notice to the defendant for contract enforcement and asks him/her to respond. Solutions include a summary suit based on the written contracts and invoices. Under this, a regular trial is not held unless the defendant raises objections to the case.
Please note that the burden of proof is on you, and hence, keep all the evidence handy. This includes invoices, proof of delivery of goods, and proof of all communication. When judgment is executed in your favor, you can arrange to recover your dues. This process may include the seizure of the debtors’ assets or accounts.
Initiate insolvency proceedings in cases of large recoverables.
When you have big customers with large receivables, you can even initiate proceedings to start insolvency proceedings to recover your unpaid receivables. You can do this under the Insolvency and Bankruptcy Code of 2016. The Corporate Insolvency Resolution Process (CIRP) helps in resolving corporate insolvencies for corporate clients who don’t pay.
File a criminal case for fraud and cheating.
The relevant sections that apply are Section 420 for cheating and Section 406 for criminal breach of trust. This section applies if money is entrusted for a specific purpose and misused.
Engaging a lawyer:
Make sure that you hire a competent lawyer after checking his credentials.
Section 73: This section covers damages and compensation for loss or breach of contract.
Order XXXVII covers summary suits and applies to written contracts, bills of exchange, promissory notes, and contracts for services. This avoids the necessity of a prolonged trial. Execution of suits Order XXI covers execution of decrees.
Section 138 covers the dishonour of cheques due to insufficiency of funds.
Insolvency and Bankruptcy Code 2016
This is for creditors who owe more than Rs 1 crore and have reneged on their payments.
Article 18 of this Act prescribes a time ceiling of 3 years on outstanding claims and recovery of unpaid bills.
Section 420 covers fraud and remedies for the same.
This section explains how to recover unpaid invoices legally. We describe the relevant legal remedies for non-payment of invoices.
This enables creditors to file a case in court for the recovery of their receivables. This is an expeditious process to bring about quick judgements and speedy resolution to the case. Defendants are normally given 10 days to respond. In case they don’t, the court will accept the plaintiff’s accusations. But this can backfire if the defendant does not accept the credit he received. If he accepts, he will get ordered to pay damages. In some cases, the plaintiff also gets awarded damages.
When bills, cheques and negotiable instruments are not honoured, this is covered under the Negotiable Instruments Act. Section 138 of the Negotiable Instrument Act addresses dishonour of checks by nonpayment. In a lawsuit filed under this section, the customer responsible for the cheque bouncing will get a notice, and after the court trial, an appropriate order will be passed if his nonpayment persists after 30 days.
There are different criminal remedies available. Section 406 covers the criminal breach of trust. In this case, the buyer has breached the seller’s trust from the beginning by refusing to pay for the goods purchased.
Operational creditors are those who own operational debt, and under Section 5(21) of the CIRP Act, receivables for goods and services are classified as operational debt of the business. Such operational creditors can start legal proceedings under the relevant provisions of the CIRP Act. The Act prescribes the entire procedure for filing a suit under the National Company Law Tribunal for quick resolution of the case.
Picking the right strategy at the right time is the most important thing. Making sure that your claim is not time barred, finding the right legal solution, a competent lawyer who acts in your best interests, and getting the best verdict in your favour are all steps to the resolution of your unpaid invoices problem. You can achieve success by getting an order to enforce your claim against the defaulting customer’s properties and assets. Starting a legal solution may be a daunting and cumbersome process, but do not get fazed and proceed with courage. Getting the order for payment and enforcing the order is essential to recovering your funds. In short, the process starts with giving reminders and culminates in a court order demanding the defendant (customer) to make payment.
Taurus Collections India is a professional loan collection agency specialising in recovering overdue payments for businesses. With expertise in debt recovery and a proven track record, Taurus Collections ensures ethical, fast, efficient, and legally compliant debt collection services across India. By utilising their advanced strategies and personalised approach, you can improve cash flow, reduce outstanding debts, and focus on growth without the stress of handling collections.
Need help recovering your unpaid debts? Contact Taurus Collections India today and secure your financial future with expert debt recovery solutions!
Taurus Collection is a B2B & B2C collection agency that goes beyond the ordinary. With a commitment to excellence, we offer a ‘No Collection, No Fee’ service that is backed by our in-house advocates with an exceptionally high success rate.
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