How to Protect Your Business When a Client Doesn't Pay
Legal tools available to Malaysian SMEs for recovering unpaid debts — from Letters of Demand to CIPAA adjudication.
Lawgistics December 1, 2024 6 min read
InsightsLate and non-payment is one of the most common legal problems faced by Malaysian SMEs. Before you escalate, understand the tools available to you — and how to use them in sequence.
Step 1: Your Contract
Recovery starts with your contract. Does it specify payment terms, late payment interest, and the right to suspend services? If you don't have a written agreement, your options narrow significantly. This is why getting your service agreement right before starting work matters.
Step 2: Letter of Demand
A formal Letter of Demand (LOD) from your lawyer is often enough to prompt payment. It signals seriousness, creates a formal record of the debt, and is required before most legal proceedings. Many debts are settled at this stage.
Step 3: CIPAA (Construction Industry Only)
If you're in construction or related industries, the Construction Industry Payment and Adjudication Act 2012 (CIPAA) provides a fast-track adjudication process that bypasses the court system entirely. Adjudication decisions are typically issued within 45 working days and are immediately enforceable.
Step 4: Small Claims Court
For debts under RM5,000, the Small Claims Court (Mahkamah Tuntutan Kecil) is fast, cheap, and designed for self-representation. No lawyers required.
Step 5: Civil Suit
For larger debts, a Writ of Summons through the Magistrates' or Sessions Court is the standard path. If the debt is undisputed, a summary judgment application can resolve the matter quickly without a full trial.
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