When an out-of-pocket subcontractor recently fell victim to the collapse of luxury Victorian building group VCON, he did not take it quietly. Rather than wait for administrators to determine how much, if any, he and the other unsecured creditors would receive of the substantial amount they were owed, the subbie allegedly tampered with water mains and poured concrete down a water pipe at the site of one of VCON’s large apartment projects.
While exacting revenge probably felt good, it also caused more than $1 million in damages and potentially put the subbie on the wrong side of the law.
Earlier this year the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Bruce Billson, publicly acknowledged that the issue of bad debtors was impacting those working in the sector.
Billson noted the ASBFEO assistance helpline was getting more and more calls from small businesses, tradies and subcontractors “worried that not only are their invoices not being paid on time, but that their business customer might never pay as they are insolvent.”
“If those in the building supply chain can’t have the confidence that they will be paid in full and on time, they are facing constant financial insecurity— and they start finding it hard to pay their own subcontractors in time. It’s not fair and the construction sector insolvency numbers are frightening.”
Fortunately, tradespeople don’t have to resort to illegal means to retrieve money owed to them while protecting their interests as a creditor.
A Central Coast-based builder says that when he launched into self-employment 35 years ago, he was frequently owed money. “In the early days, it was pretty frequently, once a month, every month, I’d have to chase something. The average amount owed was a couple of weeks’ pay, equating to around $5000-$6000. The largest amount I had outstanding was around $40,000.”
Being owed such large amounts affected his cashflow, not only making bill-paying difficult but also making it harder to source materials, he says.
As time passed and he gained more experience, the builder says he developed some strategies that made getting paid easier. These included getting his partner to “write stern letters” and even threats of legal action. You need to be constantly on the customer’s back so they get sick of hearing from you. With the smaller jobs, I sometimes arranged to get ‘progressive payments’. So if they didn’t pay at the times I’d arranged, I refused to work, and the job would be at a standstill until I got paid.”
Tradesperson concierge service Tradebusters says when it comes to recovering debt, many tradies are being stung twice. “Getting clients to actually pay on time can be a nightmare. It’s even worse when you also have to waste time chasing those payments.”
Tradebusters says the best way to ensure you don’t get stung by bad debtors is to do your research before agreeing to the work. “Research your clients carefully. Just as a customer may do background checks on you, so should you [do such checks] on them. Be wary of customers that call you in to ‘finish off ’ a job that some other tradie has started. Perhaps the tradie never came back because he was not paid? Drill down into what happened and why the job is only partially complete.”
In addition to providing simple, easy and clear payment options and offering discounts for paying on time or early, the Australian Securities & Investments Commission (ASIC) also advises those in the construction sector to check whether a company is in liquidation or deregistered on the ASIC registers.
Both Tradebusters and ASIC insist the key to ensuring customers meet their financial obligations to you is to ensure your terms of business are robust. Both say it is worth including a clause in the terms and conditions about the consequences of unpaid invoices.
“These may include a late payment fee, interest charges, stopping further work and/or passing the account to a formal debt collection agency,” TradeBusters says.
ASIC says other ways to recover outstanding debt include contacting the customer in writing to request payment, setting up regular payment reminders, and sending a formal letter of demand.
If the customer still won’t pay it may be worth contacting a debt collection agency who as part of their service will contact and pursue debtors, send a letter of demand, prepare a summons and, if necessary, assist with court action.
If all else fails it may be time to escalate the issue by obtaining help via a community legal centre or legal aid commissions, ASIC suggests, before conceding not all debts are worth chasing.
“In deciding whether to pursue debts, you’ll have to consider how much is owed, the cost and time it will take you to recover the debt, and whether the business you are chasing has the ability to pay the debt.”
