It’s an unfortunate reality of doing business in Australia that when you make sales on credit, some customers will be slow at paying you on time, and some will not pay you at all.
When considering what options are available to businesses with unpaid debts, it’s important to first determine:
- Whether your customer is an individual or a company; and
- What the size of the debt is that is owing to you.
The world of debt recovery can be complex, and the likelihood of recovering an overdue debt will often depend on the options available to you.
Is the unpaid debt owing from an individual?
If your customer is an individual, the process for getting the debt recognised can be a lengthy and often time-consuming process. For this reason, it is always recommended that you first try to negotiate an informal payment agreement or reduced settlement with your debtor.
Taking formal steps against an individual who owes you money will often involve:
Step 1: Getting a court judgment or order
Step 2: Applying for a bankruptcy notice*
Step 3: Serving the bankruptcy notice*
Step 4: Filing a creditor’s petition with the courts*
Step 5: Obtaining a sequestration order*
To understand this process in more detail, please visit the Australian Financial Security Authority website who is the body that manages the application of bankruptcy proceedings in Australia.
* In order to apply for a bankruptcy notice, the minimum amount of debt that can trigger bankruptcy is $10,000
Is the unpaid debt owing from a company?
If your customer is a company, taking formal steps against the debtor can be straightforward.
The process for taking formal steps against a company are as follows:
Step 1: Making a Statutory Demand**
Step 2: Making an Application for a Winding Up Order**
Step 3: Obtaining a Winding Up Order**
To understand the formal process in more detail, the Federal Court of Australia has published a useful guide here.
** In order to make a Statutory Demand, the minimum amount of debt owed to you must be $4,000
What is the size of the debt?
The debt thresholds for taking formal steps against a customer will vary depending on whether your customer is an individual or a company.
- If your customer is an individual, the minimum amount of debt that can trigger bankruptcy is $10,000.
- If your customer is a company, the minimum amount of debt owed to you must be $4,000.
For unpaid debts which are owed to you that are less than the thresholds above, unfortunately there are limited options available to you, and you should seek the expertise of a professional debt collection agency or law firm on how best to take the debt forward.