Debt recovery for small business
If you are chasing unpaid debts from customers or other businesses there are steps you can take to recover the money and measures you can put in place to reduce the chance of it happening again.
It is important to perform background checks on your customers before doing business with them.
If the business you are dealing with is in administration, liquidation or deregistered they may not have the ability to pay you. Check whether a company is in liquidation or deregistered on ASIC Registers.
To prevent bad debts occurring and protect your business you should:
- Only send out goods or provide services after customers pay their bill
- Provide simple, easy and clear payment options
- Invoice customers quickly
- Give discounts for paying on time or early
- Create sensible limits on the credit that customers can take out with your business.
When you have not been paid for goods and services you provide, the profitability and cash flow of your business can suffer. It is important to establish a process to manage payments and recover debt.
Here are key steps to include in your debt recovery process:
- Check contract terms to see when payments were due
- Contact the customer in writing to request payment
- Keep records of all customer correspondence
- Set up regular payment reminders
- Send a formal letter of demand
- Consider hiring a debt collector if the customer still won’t pay
- Consider taking legal action
- Do a property search on the Personal Property Security Register (PPSR) to recover unpaid goods.
Business.gov.au is a great website for small businesses that provides template emails to recover debts.
In deciding whether to pursue debts, you’ll have to weigh up how much is owed, the cost and time it will take you, and whether the business you are chasing has the ability to pay the debt.
Get legal help to recover debts
If your customer refuses to pay or doesn’t return calls, here are some organisations that offer legal help.
Small Business Commissioner or Ombudsman
Small business commissioners and ombudsmen are government appointed advocates that represent the interests of small business. Services include advice on how to recover debts and subsidised or low-cost dispute resolution. Contact your local Small Business Commissioner or Ombudsman.
Community legal centres
Community legal centres offer evening advice clinics, letter writing assistance and help with filling out Court forms. Search for a local community legal centre on the National Association of Community Legal Centre website.
Legal aid commissions
Legal aid commissions can assist with serious legal action that you can’t afford to take on yourself. You should check whether your case fits their guidelines. Services include free information sessions and initial legal advice, letter preparation and assistance running a court case. The Australian Government website provides links to all legal aid commissions.
Small claims tribunals and lower courts
Tribunals and courts provide quick, simple, legally-binding solutions, without having to use a lawyer or deal with court procedures. Services include general advice, assistance completing forms, help arranging a summons and informal dispute settlement before a magistrate. The ACCC’s website has a list of small claims tribunals.
County, district and supreme courts
These courts will decide on disputes where the amount owed is too high for a small claims tribunal or lower court. Consider using a lawyer if your case goes to one of these higher courts as procedures are more formal and complicated.
Private legal advice
Using a lawyer can sometimes save you money if you are owed a large amount but they can cost you money if the Court doesn't order the company at fault to pay your legal costs. Services a lawyer can provide tailored legal advice and guidance, letters of demand and court case management from beginning to end.
Using a debt collection agency can take the burden off you but you must be prepared to forgo a percentage of the amount owed. You’ll need to work out if the debt collection fee is worth the cost of recovering the debt.
Services include contacting and chasing up debtors, sending a letter of demand, preparing a summons and running court action.
Remember that even if an order or judgement is made for a business to pay a debt, you’ll still need to enforce the order. This can be difficult and can be an added cost. Find out more about the rules on debt collection on the ACCC’s website.