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Review the terms of your contract

If you have a written contract, the first thing to do is to read it carefully. Check the contract terms for the payment conditions and debt recovery options.

If you have a verbal contract (or part verbal/part written contract), you’ll need proof of what you both agreed, such as emails or texts.

Confirm:

  • the date the customer should have paid you
  • the payment method, such as bank transfer or cash
  • what you both agreed would happen if payment was late.

You may want to get legal advice if you’re having trouble understanding the contract terms.

2. Send a reminder

A missed payment could just be an oversight. Get in touch with your customer by phone, email, letter or in person to:

  • give them a friendly reminder
  • discuss a new payment date
  • negotiate a payment schedule if needed.

Debt recovery templates

Business Victoria has several handy templates that can help you send:

  • reminder email
  • an overdue payment second reminder email
  • a final notice email.

Visit Business Victoria to use their templates.

3. Send a letter of demand

If your customer doesn’t respond to your reminders, send a letter of demand, or ask a legal professional to draft one for you.

You have legal and consumer law obligations when contacting other businesses about debt. To find out what they are, read the debt collection information on the Australian Competition and Consumer Commission (ACCC) website.

4. Get help with dispute resolution

If contacting the customer hasn’t worked, you may need to get help to resolve the issue.

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) website has:

Mediation is a common form of dispute resolution where you and your customer work with a mediator to reach an agreement. You can find a nationally accredited mediator on the Australian Mediator and Dispute Resolution Accreditation Standards website.

5. Use a debt collection agency

If you can't recover the debt after friendly reminders, informal negotiations and a letter of demand, you might decide to engage a debt collection service.

Let your customer know that you plan to use a debt collector. This may prompt them to pay the debt first.

6. Take legal action

If nothing else has worked, you might want to take legal action. Depending on the amount of money involved, you can either get legal advice or lodge a claim with a small claims tribunal.

Going to court

There are services in each state and territory that can refer you to appropriate lawyers or law firms. Some states and territories also have free or subsidised initial advice services.

Find out where to get legal help on the ASBFEO website.

Going to court over a contracting dispute can give you a definite outcome. But court can be costly, stressful and time-consuming. Find out what’s involved when you go to court over a dispute.

7. Protect your business from future unpaid debt

There are steps you can take to protect your business from unpaid debt in the future.

  • Know who you are dealing with before you enter into an agreement with another business. Check out the advice on dealing with businesses and companies on the Australian Securities and Investments Commission (ASIC) website.
  • Have a signed contract. Putting agreements in writing means everyone can refer to it if there’s a dispute.
  • Use a good invoicing system. A good system will help you manage your cash flow, keep track of customers and stay on top of money they owe you.
  • Set up payment terms and policies that will help you get paid on time. Make sure everyone is clear about your payment timeframes and expectations.
  • Understand your rights. Make sure you're up-to-date on laws such as consumer protection and fair trading. If you aren't sure, talk to a legal professional or business adviser.

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