Chasing unpaid invoices is one of the most stressful challenges in running a construction business. Late or missed payments can disrupt cash flow and threaten a business’ viability. This article describes some clear steps you can take as well as legal pathways available to recover debts efficiently and protect your interests.
There are separate mechanisms available to you depending on the amounts involved and the relationship between the parties.
(a) Initial Communication
Before taking formal action, it’s both practical and often legally required to try resolving payment disputes informally. This involves promptly contacting the client to discuss the issue and seek payment. It is essential to keep notes of these discussions.
Pro tip: if a commitment to pay was made, or an agreement for instalments, be sure to follow the discussion up with an email outlining the agreement reached during the discussion.
(b) Letter of Demand
If a friendly chat doesn’t lead to payment, it’s time to send a formal letter of demand. This letter should clearly state the amount owed, the services rendered or products provided, that payment is overdue and a specified date that you require payment by. The letter should also outline the potential consequences if the debt remains unpaid, like taking legal action without further notice to the debtor. Be sure to include any written correspondence where the debtor had committed to pay or refer to relevant telephone conversations. Keep the tone formal, save a copy for your records, and send it in a way that confirms receipt.
Pro tip: Courts or Tribunals often require proof of service. If you are sending a letter via post be sure to send it via registered post, or ask for a read-receipt if sending by email.
(c) Alternative Dispute Resolution (ADR)
Prior to lodging a claim with a Court or Tribunal, you may consider inviting the other party to participate in ADR, such as mediation. This provides a confidential, cost-effective forum to negotiate a mutually acceptable solution and often preserves business relationships. ADR is sometimes encouraged before escalating to tribunals or courts. This can be proposed it in your letter of demand or through direct communication with the responding party.
Pro-tip: This is an effective mechanism if there exists disputes around the services delivered.
(a) Building and Construction Industry Security of Payment Act (SOPA)
The Building and Construction Industry (Security of Payment) Act 2009 (ACT) (SOPA) offers a fast-track adjudication system that enables payments to be enforced without the need for lengthy court battles. The SOPA requires a payment claim to be paid within 15 business days, regardless of contractual arrangements, subject to a payment schedule being delivered.
Essentially an applicant will deliver a payment claim to the respondent and, if the respondent fails to act within prescribed timelines, the applicant will become entitled to apply for the matter to be decided by an arbitrator. The successful applicant can apply to the Magistrate’s Court for an enforcement order of the arbitrators decision.
This mechanism is especially useful if the parties are at an impasse about the works completed, alleged defects or quality concerns, as the arbitrator will make his finding based on the information each party submits in its case.
Please be aware that the SOPA mechanism requires strict compliance with formality and time-period, if you miss a step your application will not be successful.
(b). Courts and Tribunals
If informal methods and SOPA processes don’t resolve the dispute, formal legal options are available based on the amount owed:
Need Help?
Debt recovery can be complex and stressful, but you don’t have to face it alone. Whether you’re making a claim, responding to one, or unsure where to start, the Master Builders ACT Workplace Relations Team is ready to assist with advice and resources tailored to your situation.
📧 workplace@mba.org.au
📞 (02) 6175 5900
