Skip to content

Debt recovery

Increase your cash flow by recovering overdue customer payments.

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

To do

Keep a record of all email, mail and phone contact with the customer during the debt collection period. Records of any missed payment dates previously agreed to are helpful as the process escalates.

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 another 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.

Friendly reminder email template (DOCX 36.33 KB)DOCX icon

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.

Overdue email template (DOCX 34.3 KB)DOCX icon

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 again call or email them to discuss the outstanding invoice and request payment.

Final notice email template (DOCX 34.5 KB)DOCX icon

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.

Follow up contact script (DOCX 34.04 KB)DOCX icon

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.

Letter of demand template (DOCX 34.33 KB)DOCX icon

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 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.

New customer engagement letter template (DOCX 38.51 KB)DOCX icon 

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 Financial policy and procedure manual template. It 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.

Financial policy and procedure manual template (DOC 191.5 KB)DOC icon 

Debt collection and dispute resolution contacts

You can seek help from: