debt recovery - collection

Everyone who owns or manages a business is unfortunately aware that some accounts will not be paid when due.  Unpaid debts can critically damage cash flow and the process of debt recovery takes time and energy that would be better used in other aspects of your business.

In this 3 part series we look at strategies every business can use to maximise the recovery of accounts and minimise lost debts.  In part 1, we looked at the start the commercial relationship.  In part 2, we looked at how to best manage the ongoing business relationship.  And in this final part 3, how to maximise your collection of monies due and payable.

Promptness is Golden

Issue the invoice as soon as you can.  A customer is usually much more willing to pay when the work has just been done or delivered, when you are front of mind and they are happy with what they have received.  If they have forgotten all about the work by the time the invoice arrives, the less urgency they will feel about payment and the more likely it is that a dispute may arise.

Promptness is also valuable in the follow-up.  Rather than allowing debts to linger, consider implementing a system whereby whenever a debt is overdue by a set number of days, the debtor is contacted by phone, email or letter.  Being diligent in reminding the debtor ensures that they do not forget the debt and you let them know that you will not be forgetting it either.

Stages of Debt Recovery

The Letter

The first step in formal debt recovery proceedings is sending a formal letter of demand.  This letter sets out the circumstances giving rise to the debt and offers the debtor a final opportunity to make payment before more serious steps are taken.

Statutory Demand

If the debtor is a company, the debt is more than $2,000 and there is no genuine dispute in relation to the debt, then you can issue a statutory demand upon the company.

Once the statutory demand has been served upon the company, it has 21 days to either pay the debt (or agree with you a payment arrangement) or apply to the Supreme Court to set aside the statutory demand.

Failure to comply with or set aside a statutory demand allows you to start liquidation proceedings against the debtor.

When served with a statutory demand, companies will often pay the debt to avoid the risk of being placed into liquidation.  However, if there is any dispute regarding the debt (for example, if they claim your work was in some way inadequate) then the Court will readily set aside the statutory demand and you are back at the beginning.

Court Proceedings

Regardless of whether the debtor is a person, a company or a trust, you can commence a claim in the relevant court.  In WA the relevant court depends on the size of the debt:

  • up to $10,000 – Magistrates Court Minor Cases (formerly called Small Claims)
  • $10,001 – $75,000 – Magistrates Court general jurisdiction
  • $75,001 – $750,000 – District Court
  • Over $750,000 – Supreme Court

The procedures are different for each jurisdiction.  However, generally speaking you must file a claim form at the court and have it served upon the debtor in the correct manner.  If the debtor does not respond to the claim in the prescribed time, then you can enter a default judgment against them.

If the debtor disputes the debt, the next step you need to take depends on what court you are using.  For more information you may wish to read the information published by the WA courts:

Once you obtain a court order for payment of the debt, those orders can be enforced in a variety of ways, including seizure of property, garnishing wages, statutory demand and bankruptcy notice.

For specific information on how to effectively undertake court action to recover your debts, contact Oldfield Legal.


The content of this article is intended to provide a general guide to the subject matter.  Specialist legal advice and business advice should be sought about your specific circumstances. For specific Legal Advice please contact us.


photo credit: Theen … via photopin cc

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