On this page
- Understand debt recovery procedures
- Tips to avoid bad debt reoccurring
- Inform and train your staff about your business's payment terms
- Support and resources for debt dispute resolution
Debt recovery procedure
Use the following steps – from friendly reminder through to letter of demand and bad debt collection – as an escalation process to contact your customers about an outstanding payment.
1. Contact with a friendly payment reminder
When payment first becomes overdue, give your customer a courtesy reminder by phoning, emailing or sending them a letter.
Contacting them may be enough to get the invoice paid – they might've forgotten about the bill, paid the money into the wrong bank account, or there could be another minor issue that's easily and quickly resolved.
Include payment options, banking details and contact information in the reminder to make it easier for the customer to pay you quickly.
Use our friendly reminder email template below as a resource or reference:
2. Contact with an overdue payment reminder
If the payment remains outstanding – and the customer has missed the next agreed payment date, or there's been no contact at all – give the customer another call, or send another email or letter reminder of the money owing, and request payment.
Use our overdue email template below as a resource or reference:
3. Contact your customer with a final notice
When the customer hasn't paid as per the terms of payment – and has missed any extended payment dates again – call or email them to discuss the outstanding invoice and request payment.
Use our final notice email template below as a resource or reference:
4. Try to make direct contact with your customer
If there's 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 could help facilitate a personal relationship with the customer that could be useful for future payments.
Use our follow up contact script template below as a resource or reference:
5. Send a formal letter of demand
If all your attempts to contact them and receive payment have failed – consider sending a letter of demand. Keep in mind this procedure should only be done as a last resort – it has the potential to damage the business relationship established with the customer.
Use our letter of demand template below as a resource or reference:
6. Consider using a debt collecting agency as a last resort
If you still haven't been paid – consider using a debt collecting agency to collect the outstanding money from your customer.
It's useful to check a list of fair debt collection practices, developed by Consumer Affairs, and the Australian Competition and Consumer Commission (ACCC) so you understand the boundaries of debt collection:
- Read Consumer Affairs guidelines on dealing with debt collectors
- Read the ACCC's guidelines on 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
- register and conduct property searches – if you're a supplier – on the Personal Property Security Register (PPSR) to recover goods that haven't been paid for.
It's always good practice to clearly outline at the beginning of a customer relationship your expected terms of trade and payment.
Use our new customer engagement letter template below when signing up a new customer. The template includes a terms of trade paragraph you can use to include:
- invoice dates
- any additional charges for overdue payments
- debt collection procedures.
Australian Supplier Payment Code (ASPC)
ASPC asks businesses to voluntarily pledge to pay suppliers on time, communicate clearly with suppliers, resolve disputes quickly and adopt fair payment practices throughout their businesses.
Under the Code, businesses are required to pay small and medium sized business suppliers within 30 days of receiving a tax invoice and to not change the settlement period without a valid reason.
Train staff and reward for confirmed sales
It's important your staff are aware of your business's payment terms, customer invoicing and debt recovery procedures. Have a financial policies and procedures manual which every staff member reads through as part of their induction.
If you don't already have one, use our financial policy and procedure manual template below as a resource – it also provides everything you need to know about debt recovery processes.
When sales staff are rewarded for the amount of sales they make, sometimes they might '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:
- Financial policy and procedure manual template (DOCX 98.15 KB)
- Friendly reminder email template (DOCX 31.25 KB)
- Overdue email template (DOCX 28.56 KB)
- Final notice email template (DOCX 28.69 KB)
- Follow up contact script (DOCX 28.54 KB)
- Letter of demand template (DOCX 28.48 KB)
- New customer engagement letter template (DOCX 31.98 KB)