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.
To prevent bad debts occurring and protect your business, you should:
- check whether a company is in liquidation or deregistered on ASIC Registers
- 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.
Find more information see Information Sheet 26 Dealing with businesses and companies (INFO 26).
When you have not been paid for goods and services you provide, it may affect the profitability and cash flow of your business. It is important to establish a process to manage payments and recover debt.
These are some steps you can take to recover outstanding debts, including:
- checking contract terms to see when payments were due
- regular monitoring of when payments are due and received/not received
- contacting the customer in writing to request payment
- keeping records of all customer correspondence
- setting up regular payment reminders
- sending a formal letter of demand
- considering hiring a debt collector if the customer still won’t pay
- considering taking legal action
- doing a property search on the Personal Property Security Register (PPSR) to recover unpaid goods.
In deciding whether to pursue debts, you’ll have to consider how much is owed, the cost and time it will take you to recover the debt, 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 state small business commissioner or the Australian Small Business and Family Enterprise 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 Community Legal Centres Australia 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 Attorney-General’s Department website provides links to all legal aid commissions.
Small claims tribunals and lower courts
Tribunals and lower 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 Australian Competition and Consumer Commission’s (ACCC) website has a list of small claims tribunals.
District, county, 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 also cost you money if the court doesn’t order the company at fault to pay your legal costs. Services a lawyer can provide include tailored legal advice and guidance, letters of demand, and court case management from beginning to end.
Using a debt collection agency can save you time and money pursuing the debt, but they often take an amount recovered as part of their service offerings.
Their services include contacting and pursuing debtors, sending a letter of demand, preparing a summons and running court action.
Debt management service providers must hold a credit licence. See Information sheet 254 (INFO 254).
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.