On this page
- Debt recovery procedure
- Business steps to avoid bad debt occurring
- Ways to encourage staff to sell responsibly while still rewarding sales targets
- Debt dispute resolution help
Debt recovery procedure
These steps can be used as an escalation process to contact your customers about an outstanding payment from friendly reminder through to letter of demand and bad debt collection.
Be aware there are regulations for contacting your customers for overdue payments, refer to Consumer Affairs Victoria for a list of the banned practices for debt collection.
1. Contact with a friendly payment reminder
Once the payment is overdue phone, email or mail the customer with a courtesy reminder. The customer may have forgotten, paid into the wrong bank account or other minor issue and your contact will be enough to get the invoice paid. Include your payment options, banking details and contact information to make it easier for your customer to pay you quickly.
2. Contact with an overdue payment reminder
If the payment remains outstanding and the customer has missed the next agreed payment date, or there has been no contact, phone the customer or send another email or letter reminder of the money owing and request payment.
3. Contact your customer with a final notice
When the customer has not paid as per the terms of payment, and has missed any extended payment dates gain call or email them to discuss the outstanding invoice and request payment.
4. Try to make direct contact with your customer
If there is still no payment or response consider visiting the customer in person (or phoning them if previous contact has been via email) to ask for payment. This sometimes helps create a personal relationship with the customer that could be useful for future payments.
5. Send a formal letter of demand
In the event that all attempts to contact them have failed, consider sending a letter of demand. This should be only done as a last resort, as it can damage your relationship with the customer.
If you still haven't been paid, then may consider using a debt collecting agency to collect the outstanding money from your customer. It is useful to check a list of fair debt collection practices, developed by Consumer Affairs so you know the boundaries of debt collection.
Ways to avoid bad debt occurring
To reduce the possibility of customer bad debt in your business you can:
- perform a thorough background check on a business before offering credit
- set safe customer credit limits
- only release goods when payment has cleared
- wait for direct deposit payment to clear before shipping any goods
- send invoices out as soon as a job is complete, or on a regular date
- clearly state all payment options and information on your invoices or contracts to make it easier for customers to pay you
- keep regular contact with your customers
- offer a small percentage discount for early payment of bills
- if you're a supplier, register and conduct property searches on the Personal Property Security Register (PPSR) to recover goods that haven't been paid for.
It is a good practice to clearly outline at the beginning of a customer relationship your expected terms of trade and payment.
Use our below 'New customer engagement letter template' when signing up a new customer. This includes a terms of trade paragraph you can use to include invoice dates, any additional charges for overdue payments and debt collection procedures.
Train staff and reward for confirmed sales
It is important your staff are aware of your business's payment terms, customer invoicing and debt recovery procedures. You should have a financial policies and procedures manual which every staff member goes through as part of their induction.
Use our 'Finale policy and procedure manual template' includes the debt recovery process outlined above.
Often sales staff are rewarded for the amount of sales they make and so they may 'bend the rules' to book another sale. One way to avoid this is to reward your sales staff once the money has been collected not when the sale is made.
Debt collection and dispute resolution contacts
You can seek help from:
- The Office of the Victorian Small Business Commissioner for mediation and investigation assistance for disputes over the debt
- Victorian Civil and Administrative Tribunal VCAT - Civil Disputes
- Consumer Affairs Victoria for fair debt collection practices.
- Financial policy and procedure manual template (DOC 191.5 KB)
- Friendly reminder email template (DOCX 36.33 KB)
- Overdue email template (DOCX 34.3 KB)
- Final notice email template (DOCX 34.5 KB)
- Follow up contact script (DOCX 34.04 KB)
- Letter of demand template (DOCX 34.33 KB)
- New customer engagement letter template (DOCX 38.51 KB)