Debt recovery for small business
You can take action to get the money back and take precautions to make sure it doesn't happen again if you are pursuing delinquent payments from clients or other companies.
Avoiding bad debts
Investigating your clients' backgrounds is crucial before doing business with them.
In order to shield your company and stop bad debts from happening, you should:
- Verify on ASIC Registers if a company has been deregistered or is in liquidation.
- deliver products or render services only after clients have settled their invoices.
- Give straightforward, easy-to-understand payment options.
- invoice clients promptly
- Offer discounts for early or on-time payment.
- Set reasonable restrictions on the amount of credit that clients may obtain from your company.
How does a business recover debt?
The profitability and cash flow of your company may be impacted if you have not received payment for the goods and services you have rendered. Setting up a procedure to handle payments and collect debt is crucial.
The following are some actions you can take to get your unpaid debts back:
- looking up the due dates for payments under the contract
- routine tracking of due dates and received/not received payments
- requesting payment in writing from the client
- preserving copies of every correspondence with clients
- establishing recurring payment reminders
- submitting a formal demand letter
- If the client is still unwilling to pay, think about employing a debt collector.
- thinking about pursuing legal action
- retrieving unpaid goods by conducting a property search on the Personal Property Security Register (PPSR).
How to handle a client who declines to pay
You must weigh the amount owed, the cost and duration of recovering the debt, and the viability of the business you are pursuing when determining whether to pursue a debt.
Seek legal counsel to settle debts
In the event that your client declines to pay or doesn't answer your calls, the following organisations provide legal assistance.
Ombudsman or Small Business Commissioner
Appointed by the government, small business commissioners and ombudsmen serve as advocates for small businesses. Services include discounted or free dispute resolution as well as guidance on debt recovery. Speak with the Australian Small Business and Family Enterprise Ombudsman or your state's small business commissioner.
Community law offices
Community legal centers provide late-night advice sessions, help writing letters, and assistance completing court paperwork. Use the Community Legal Centres Australia website to find a community legal center in your area.
Commissions for legal aid
When you can't afford to pursue serious legal action on your own, legal aid commissions can help. Make sure your case qualifies under their guidelines. Free information sessions, preliminary legal advice, letter preparation, and help managing a court case are among the services offered. Links to all legal aid commissions are available on the website of the Attorney-General's Department of the Australian Government.
Smaller courts and small claims tribunals
Without the need to hire an attorney or deal with the court system, tribunals and lower courts offer swift, easy, and legally-binding resolutions. General guidance, help filling out paperwork, assistance setting up a summons, and informal dispute resolution before a magistrate are among the services offered. A list of small claims tribunals can be found on the website of the Australian Competition and Consumer Commission (ACCC).
Supreme, county, and district courts
In cases where the debt is too large for a small claims tribunal or lower court to handle, these courts will make the decision. If your case reaches one of these higher courts, you should think about hiring counsel because the processes there are more intricate and formal.
Individual legal counsel
If you are owed a significant sum of money, hiring an attorney may help you avoid paying more money later on if the court does not order the at-fault company to cover your legal expenses. A lawyer can offer a variety of services, such as customized legal advice and guidance, demand letters, and full court case management.
Agencies that collect debt
While hiring a debt collection agency can help you save time and money in the process of resolving the debt, part of their service charge is typically the amount of money that is recovered.
They can reach and follow up with debtors, write a demand letter, draft a summons, and manage legal proceedings.
Recall that you will still need to enforce any judgment or order that requires a company to pay a debt. This might be more expensive and challenging. Visit the ACCC website to learn more about the regulations governing debt collection.