Collecting unpaid debts: Best practice

by | Jun 24, 2021 | Getting Paid 101

Overdue invoices affect over half of all Australian small and medium sized businesses (SMEs).

Chasing these unpaid debts is often time consuming and is an unnecessary distraction which hinders business growth.

It’s for this reason that business owners and accounts receivable departments need to manage their overdue accounts efficiently.

Below, we have summarised these Best Practice steps to help get you paid sooner.

Step 1: Review your terms and conditions

First things first, always review your terms and conditions and ensure that they set out when invoices are due. It is always best practice to also ensure your accounting systems are up to date to reflect what has been agreed with the debtor and that the overdue invoices that have been raised reflect your agreement.

Step 2: Send a reminder

Assuming you’re satisfied that your overdue invoices are consistent with your terms and conditions, contact your customer by phone, email or meet with them in person to either:

    • discuss a payment date; or
    • negotiate a payment plan.

A quick phone call or an in-person meeting can go a long way but just remember to document all your communication and set strict deadlines on when the debt needs to be paid by.

This will help manage expectations on both sides, but importantly, it will allow you to quickly identify which of your customers may need escalation.

Step 3: Send a letter of demand

A letter of demand is the next logical step for businesses dealing with overdue debts as it will speak to your attempts to recover the debt if things need to progress to a debt collection agency or law firm.

Step 4: Use a debt collection agency

Debt collectors have strict legal and consumer law obligations when undertaking debt recovery procedures and are the logical next step in the debt recovery journey.

If you would like to learn more about the debt collection process, we would encourage you to visit the Australian Competition & Consumer Commission (ACCC) website.

Step 5: Engage a lawyer

A lawyer will take the legal steps necessary to bring the debtor to account. Typically, this will involve:

    1. issuing a statutory demand which is a formal, legal step requiring the debtor to pay the outstanding debt within 21 days; or
    2. if the statutory demand is disputed by the debtor, a lawyer will assist in preparing a statement of claim against the debtor and filing it in Court.

Typically, a lawyer will have the unpaid debt recognised by way of an expired statutory demand or a Court judgement. Following which, if the debtor still fails to make payment on the unpaid debt, you will be able to apply to have the debtor wound up and placed into liquidation.

Chasing overdue debts can often be a frustrating and exhausting process for many business owners and accounts receivable departments.

At Debtplacer, we provide SMEs with the tools and resources necessary to streamline commercial and rational outcomes between SMEs. If you would like to find out more about the Debtplacer solutions and where we can assist, please get in touch with us here.


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