In your business, you would have undoubtedly had at least one client who has failed to pay you after you have rendered services or sold them products. The question you need to ask yourself is, as a business owner how much are you willing to pay, in costs and time to recover the money you have lost? Are you willing to spend thousands of Rands on lawyers’ fees to potentially recover what is owed to you or would you consider an alternative solution that is cost-effective and quicker than litigation?
What do you do if your client doesn’t pay you?
There are many reasons why a client may not pay you for services rendered, for example, they may not have the money or there may be a dispute over the amount owed / service quality, etc.
Most businesses choose litigation to recover unpaid invoices and you will often hear the phrase “don’t talk to me, talk to my lawyer”. However, litigation is costly and time-consuming. It isn’t always the most cost-effective option, especially if the client doesn’t have the money to pay you. There is also no guarantee that after judgment is granted that you will receive any money from your client. It would therefore be wiser to use these resources in other areas of the business instead of litigation, with the likelihood that litigation could result in the funds not being recouped.
The most sensible option is therefore to choose mediation over litigation.
What is mediation?
Mediation is a form of alternative dispute resolution that can resolve payment disputes with clients, without the exorbitant fees of litigation. It is a process where a neutral and skilled mediator can assist parties who are in conflict to work out arrangements for their businesses and clients. Mediation is a voluntary process that can help two sides to reach an acceptable solution to their differences. A mediator can help the parties to examine ideas and options in a neutral, safe environment where they are both free to express their opinions. The mediator will create a safe environment for the client and business owner to freely speak and help enter into negotiations. If the client is not in a financial position to pay the full sum due, instead of paying exorbitant lawyers’ fees, a mediator can negotiate a settlement or payment arrangement.
How can mediation help me to recover my money?
Often the client can make payment for the services rendered but there is simply a dispute over something or other. The mediator will listen to both parties and help the parties discover where the dispute lies. The mediator will then help the parties come up with solutions for the dispute.
In a relatively straightforward commercial dispute, the mediator should be able to assist the parties to reach a mutual agreement, which is legally binding within two to three days, so that the agreed settlement can be promptly implemented.
What are the advantages of debt mediation?
Most contracts nowadays include a clause to state that mediation is required first before the parties can approach the court. Therefore, parties cannot litigate unless they have attempted mediation. The reason why this clause is included in commercial contracts is that it offers parties a constructive way of proceeding beyond stalled or ineffective negotiations.
Mediation offers an opportunity to preserve between your business and your client, whereas litigation would in all likelihood sever the relationship with the client or create intolerable tension that is unlikely to recover.
Secondly, mediation is confidential, whereas the courtroom and court records are open to the public. Therefore, anyone will be able to gain access to everything that is discussed in court including details about financials and the facts of the dispute, etc.
Furthermore, the solutions or settlements in mediation are discussed and negotiated between parties and they are in control of the outcome, whereas during litigation the judge makes the final decision, and the parties have no control over the settlement or outcome. There is no leeway to make adjustments or negotiations. This can impede a settlement, as there is no compromise between parties.
The number one reason why mediation is chosen and accepted by parties is simply that it is quicker and cheaper than litigation.
What does a mediator do in recovering money owed?
Firstly, the mediator will discuss the issues in dispute with the referring party. If the dispute is related to a contract, the mediator will review the contract and sit down with both parties and facilitate discussions and any misconceptions or misunderstandings around the contract. The mediator can assist with negotiations around the contract and finalize a settlement.
If the client fails to pay because of cash flow issues, the mediator will sit down with both parties and negotiate a settlement or repayment arrangement. Should a compromise be reached which means that the business recovers a good percentage of the amount owed rather than the full amount, the business will more than likely find themselves in a better position than approaching the court, with the accompanying legal costs they would have incurred and easier access to funds.
Should the client not enter into an agreement, the mediator will assist with sending a Letter of Demand. If the client refuses to pay, the matter cannot be mediated and will then be handed over for litigation.
If you are faced with a situation where a client has not paid you and you would like to save time and money, please contact us at 078 230 8737 or email email@example.com for a mediator to assist you.