When you are running a business, you are likely to encounter a situation where the customer fails to pay the invoices for the services rendered/for goods already delivered within the prescribed period of time. Therefore, it is important to understand your rights to take legal action against such a customer for non-payment of invoices.
This article will help you understand the steps you can take to recover unpaid invoices:
(a) Send a demand letter for payment
(b) Commence legal action for non-payment
However, before taking any action to recover the outstanding payment, review your contract to see if you stated any preferred method for debt collection between you and the customer.
- Demand Letter
The first step should be to send a demand letter to collect the overdue amount from the customer before initiating legal action in court. You may choose to send a demand letter multiple times before you send the final reminder.
Generally, a demand letter includes:
- The overdue amount
- Unpaid invoice number and date
- Payment due date
- Description of the goods delivered/services rendered
- Late payment charge (if any)
- Request full payment by a certain date
If it’s a final reminder, you should state that it is the final reminder and if the outstanding amount isn’t paid by the deadline, you will initiate legal proceedings against the customer without any further warning.
- Commence legal action for non-payment
After sending a demand letter, if the customer still has not paid the outstanding amount past the set due date, then you should take legal action against the customer. You can use the letter of demand as evidence in the proceedings.
When can I make a claim in the Small Claims Tribunal?
Usually, the Small Claims Tribunal will handle claims regarding unpaid debts from customers, service charges, damage to property and goods sold.
If the amount your customer has not paid you is at or below $75,000, then you are able to directly make a civil claim in the Small Claims Tribunal yourself. You can do this by filling in certain forms, which you can download from the Judiciary’s website here. Afterwards, you will need to go to the Registry of the Small Claims Tribunal in person to file the claim on your behalf. Usually, you represent yourself when making a claim as it is more straightforward. To understand more you can read “Can I obtain any legal assistance at the Small Claims Tribunal?”
For more information on making a claim via the Small Claims Tribunal, you can check out our FAQ on small claims.
What if my customer is outside of Hong Kong at the moment?
Section 13 of the Small Claims Tribunal Ordinance, states that you should still give the customer’s name and Hong Kong addresses under the defendant section, even if they are not in Hong Kong at the moment.
My customer failed to pay me for an order worth over $75,000, what do I do?
In this case, if the order exceeds $75,000 but is under $3 million, then you will need to file your case to the District Court. If your claim is for over $3 million, then the case is heard by the Court of First Instance of the High Court.
Bibliography https://www.judiciary.hk/doc/en/court_services_facilities/sct_faq_201909.pdf