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How to Go About the Small Claims Procedure (NSW)

The small claims procedure is one of the many ways a business or sole trader can recoup money owed through a legally enforceable transaction of goods or services.

Small claims procedure is effective for cases where the:

  • Claim is for less than $10,000* (*applies to NSW only)
  • Entitlement being claimed is covered under Australian workplace laws, and the
  • Statutory time limit has not expired (usually six years from when the entitlement was due to be paid)

While plaintiffs (those seeking the money owed) can work through this system unaided, there are many moving parts that need to be actioned and thoroughly followed to ensure a desired outcome – something our debt collection agency does regularly for clients.

Here is a brief outline of the small claims procedure:

Step One: Issue a Letter of Demand

If you are chasing outstanding debts, the first step is to issue a Letter of Demand to the other party.

The letter should:

  • State the money outstanding
  • Provide a defined period of time in which to settle the matter, and
  • Inform the party that further legal action could be taken if the notice is ignored

The letter should not:

  • Harass the debtor
    • This can be reported to the police and/or relevant government agencies
  • Impersonate a court document
    • This is illegal

Step Two: Receive a response

A debtor can respond in a number of ways, they may:

  • Pay the full debt
  • Show that no money is owed (e.g. transactional documentation)
  • Negotiate payment arrangements or a compromise
    • This must be confirmed in writing by both parties
  • Ignore the letter, or
  • Respond in an unsatisfactory way

If the option is open to you, you may consider writing the debt off. In some situations there are tax benefits that can help lessen the loss of this outcome, but you should seek further advice from your tax accountant.

Step Three: Approach the Small Claims Division

The Small Claims Division is geared toward reaching an outcome in one of two ways:

  1. Through a pre-trial review that enables both parties to discuss and reach a satisfactory outcome, before escalating to
  2. A hearing where a judgement will be made with a legally enforceable ruling

If a ruling is made in your favour you then have to go about ensuring that you receive the money owed to you, and this will likely require further steps on your part.

Things to consider:

  • Can your debtor pay you?
    • A debtor with no money will not be able to pay you and you’ll lose time and money on the claims process
  • Are you presenting a genuine and clear dispute over the facts?
    • If your dispute is not clear you not only risk losing your claim, but you might be up for paying legal fees for the other party if they seek legal representation
  • Have you made all attempts at settling the matter out of court?
    • Settling disputes through mediation and negotiation is not only more cost-effective, but timely too

Don’t let small debts stifle your business’ growth; start managing your debtors before it’s too late. If you need assistance with small claims debt collection why not speak to the experts and call us today.

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