Debt recovery becomes a priority especially during an economic downturn so here’s an updated practical article on the subject.

Bad debts can drive a business into insolvency, expose proprietors to personal liability and lead to far worse. Late payments can do the same.

Aiming for best practice, here’s a short list of debt recovery dos and don’ts helpful for creditors.

Follow the practices and you’ll lock up or protect money earned, rather than allow it to leak away. Ensure you are also familiar with the updated considerations for debt collection practices set out by the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission.


  1. Do be willing to negotiate Potential disputes can often be avoided by being flexible and realistic. This may involve: a delayed payment timetable, an instalment arrangement, a reduced amount or even quid-pro-quo arrangements. In communication about compromises, appropriately use “without prejudice”, other legal indicators or additional terms and conditions to make concessions subject to timely compliance. Follow up payment deadlines.
  2. Do make records and rely on clarity All communication you have with a debtor is potentially going to appear as evidence in court. Ensure demands and requests for payment are accurate, comprehensive and comply with best practice (see the debt recovery don’ts list below). Keep records and make records of all verbal communications.
  3. Do learn from mistakes As problems arise, question if there are lessons to be learned to avoid similar problems in the future. Legal improvements which reduce risk include: legal trading terms and conditions, retention of title clauses, company charges and other legal security measures. Practical improvements include: insisting on an up front payment, written assurance regarding payment times, use of a credit check, standardised sales spiel, proposal templates, and documented biding and billing procedures and documentation. If your business supplies products on credit, also consider requiring customers to fill in and sign a Credit Application containing your standard trading terms and conditions and requirement for personal guarantees.
  4. Do ask for professional help In some situations, a lawyer’s letter of demand can prompt due payment. It raises the bar above “just another pesky follow-up”. Lawyers can also advise on the strength of your debt recovery claim, the options for debt recovery at law, the likelihood of success in court and the estimated legal costs moving forward.



  1. Don’t go overboard The views expressed by the ACCC and ASIC provide debt collectors and creditors with practical guidance to avoid breaching the law when recovering debts. Debt recovery activity is affected by by the Trade Practices Act 1974 (Cth) and other law. Areas covered in the law include appropriate times to contact a debtor, privacy obligations owed to the debtor and provision of information and documents that may be requested.
  2. Don’t get personal Unjustified threats or intimidation tactics are contrary to law and can work against you if legal proceedings are commenced. Maintain a professional approach in debt recovery no matter how badly done by you feel.
  3. Don’t get emotional Be realistic about debts, especially those under $10,000. If you need to engage a lawyer, legal fees and court costs can quickly make recovery uncommercial. Before deciding what to do, factor in the time, effort and stress arising from legal proceedings. You’ll be less emotional if you prepare by learning from mistakes and promptly implementing improvements (attend to the dos listed above).
  4. Don’t forget the evidence The debtor is entitled to ask for documentation supporting a claim. It is even more critical in litigation. Debt recovery action is strengthened if there is a properly maintained file of contracts, invoices, receipts, emails, file notes of conversations and records of work performed or products delivered.

Few businesses can avoid bad debts. All businesses need to implement measures which minimise the risk of bad debts and increase the chance of debt recovery action being efficient and effective.

Prevention is better than cure. A business can prevent the cost, time and hassle of chasing debtors by perfecting its deal making procedures, forms, templates, contracts and other legal documentation. In debt recovery matters there are typically shortfalls due to the lack of such documentation.

For best practice two things are therefore paramount. First, a professional approach to debt recovery. Second, a willingness to review and improve internal procedures and documents.

Noric Dilanchian