How to Get your Debtor to Pay

Last revision: Last revision:4th July 2019

Chasing debtors is unfortunately an all too common part of running a business in Australia. You've done the work and sent an invoice, but the client has ignored it. Not only is it extremely frustrating to have to pursue a debtor, but doing so consumes valuable time and attention, and drags you away from your actual business. If you respond quickly and decisively, you can give yourself the best chance of getting the money that is rightfully yours and putting the matter behind you. Read on to learn about various avenues which you may pursue.

Please note that we use the term "debtor" in this guide to refer to any person or organisation that might owe money to your business. We also use the term "clients" fairly loosely. You might call them "customers", "buyers", "purchasers", "guests", "patients" or any other number of terms, but basically, we are talking about the people or organisations with which you do business.

Before diving in - check your contract

Before doing anything, it is a good idea to check the terms of the agreement between you and the client. This may be a service agreement, contract for sale of goods, loan agreement, promissory note, or any other contract or agreement which you used with the client or customer.

But I don't have a contract

Even if you don't have a written document called a "contract" or an "agreement", there might still be things you can do to get your debts paid. Even if you just struck a deal "on a handshake", Australian courts might recognise your right to be paid.

Under Australian law, contracts do not necessarily need to be in writing (aside from some specific situations, such as contracts for sales of land). In fact, it is possible for a contract to be entirely verbal, or in some cases an agreement might be reached through a chain of emails or Facebook messages. Australian courts may recognise these sorts of agreements as legally binding contracts. However, challenges can emerge when it comes to proving the existence of these sorts of contracts. Particularly if the agreement was entirely verbal, you might allege that the client asked you to do the work and agreed to your price. The client might deny it. It might be difficult to prove that you are right.

What does the contract say?

In any case, whether the contract is in writing or is a verbal agreement, your right to payment will depend on the terms of the contract. So this is the first place to look.

The contract will explain how and when you are entitled to payment. It may also set out various debt recovery options. It is important that any action you take is in compliance with your contract.

If you have any doubts at this stage, you should consider seeking legal advice. If you misunderstand your contractual rights, and set off down the wrong path, then this could be a costly and time consuming mistake, and could seriously harm your claim.

Who is named in the contract?

When reviewing the contract, it is important to check who the actual parties are. For example, the client, as named in the contract, might be an individual person, a company or some other legal entity. Your debt recovery efforts should be directed at the actual entity that was named as your client in the contract.

For example, if "Andrew Smith" is the sole director and secretary of "ABC Pty Ltd", and the contract is between you and ABC Pty Ltd then that is the entity which will be responsible for the debt. While your correspondence may be sent to Andrew Smith, in his role as director and secretary of ABC Pty Ltd, he may not actually be personally responsible for the debt. Your correspondence should make it clear that you are demanding payment from ABC Pty Ltd.

Consider any dispute resolution procedures in the contract

Some contracts contain clauses which specify how disputes are to be resolved, or what should happen if a payment is overdue. If the contract contains such clauses, then it may be necessary to follow the processes set out in the contract.

This guide primarily addresses general debt recovery procedures, which may not be the same as any procedures outlined in the contract.

If you have concerns about how to interpret the procedures described in the contract, or whether they are consistent with your legal rights and obligations, then it may be necessary to seek legal advice.

Ask yourself - is there a misunderstanding?

Many disputes arise out of genuine misunderstandings between the parties. Both parties might have good intentions, but might simply have different opinions about what was agreed.

Reviewing the contract might help to clarify these sorts of misunderstandings, although sometimes there are various interpretations that could be read into the contract. For example, terms such as "to a reasonable standard" could mean different things to different parties.

In other cases, there could be circumstances or background information of which you are not aware, and which could help explain the failure to pay. Sometimes, a polite discussion with the other party can help to identify any such circumstances or misunderstandings.

If the other party does have genuine good intentions regarding the payment, then it may be worthwhile seeking to maintain the positive relationship with them. In some cases, diving straight into an aggressive debt recovery process can damage this relationship, and can make payment less likely.

Gentle reminder

In many cases, businesses find that a polite Payment Reminder is enough to get the bill paid. The client might have simply overlooked the invoice, and a simple letter reminding them that the invoice is overdue might prompt them to make a payment.

Some businesses automatically send out payment reminders once a bill is overdue. In some other cases, businesses find that a simple phone call to the client can do the job.

In some cases, businesses use a series of reminders before progressing to more formal debt recovery procedures. For example, they might use a first (gentle) reminder, followed by a second, more stern reminder.

In addition, if the matter ultimately ends up in court, then it can be helpful to have a series of letters which show that you first attempted to resolve the matter amicably, and that your reminders were ignored. For this reason, many businesses like to send written payment reminders, even if they also contact clients by phone.

Letter of demand

If the client has not responded to the reminders, then it might be time to prepare a Letter of Demand. This a formal letter explaining the amount of money that is being claimed (which may include accrued interest or other additional costs such as legal costs so far), and what the debt relates to. It may also warn the debtor that if payment is not finalised by a specific date, then legal action may be commenced.

This letter also provides a good opportunity to spell out to the client that you are aware of your legal rights, are willing to fight to enforce them, and that you have strong evidence to support your claim. If necessary, you can attach copies of relevant evidence, such as photographs or copies of contracts (while retaining copies for your own records).

It is important to present a forceful, yet professional message in this letter. You may be extremely angry and frustrated at the client by this point, but emotional language and insults generally do more harm than good. Our template Letter of Demand will assist you with this.

In many cases, the threat of impending legal action (and the additional costs associated with it) may be enough to get the client to pay up.

External debt recovery agency

If the client has not responded to your various reminders and demands for payment, then you may wish to engage a third party debt recovery agency. Such agencies are available all over Australia and will pursue the debt on your behalf, for a fee.

Before engaging such an agency, it is a good idea to consider any costs charged by the agency. In some cases, for small debts, and when the prospects of recovery are unlikely, you might decide that paying an external debt collector amounts to "throwing good money after bad".

However, these agencies provide a valuable service, and can be a good way to relieve yourself from the stress and hassle of chasing debtors yourself.

In some cases, businesses find that it is beneficial to notify the client that the matter is being referred to an external debt collector. Doing so signifies to the client that you are serious about recovering the debt, and may compel them to make a payment.

Alternative dispute resolution

Alternative dispute resolution (or "ADR") refers to dispute resolution mechanisms aside from going to court. Some common forms of ADR include mediation or arbitration.

If your client will agree to take part in ADR then it can provide a lower cost way to resolve the dispute, and may give you more control over the outcome.

For example, mediation involves both parties sitting down with an independent mediator, and trying to reach an agreement about how the matter will be resolved. In most cases, reaching a resolution through mediation might require you to come to some kind of compromise. For example, you might choose to agree to some kind of payment plan, giving the client a bit more time to get their finances in order.

The website of the Mediation Standards Board provides details of nationally accredited mediators.


If you feel that you have exhausted your other options, and the client still has not paid, then it may be time to consider legal action.

Various courts, and tribunals are available to hear these disputes, depending on the size and nature of the debt, and the relevant jurisdiction within Australia.

Be warned that legal action is time consuming and costly, and the outcome is out of your control. Therefore, most businesses choose to use it as a last resort.

For smaller debts, small claims tribunals may be available. These are designed to provide relatively simple and cost effective solutions, provided the claim is small enough to fit within their limits.

For larger debts, the matter may need to be heard in a Magistrates Court, District Court, County Court, or Supreme Court. In most cases a lawyer may be required, and will certainly improve the likelihood of a successful outcome.

If the court or tribunal accepts that the client does owe the debt, then the court may deliver a judgment, ordering that the client pay the debt. In many cases it is also possible to claim some associated costs, such as some (but not all) of your legal costs.

Once a judgment has been obtained, this may provide the authority to seize and sell certain assets of the client (such as a vehicle), or to garnish the client's wages.

It is important to note that in most cases the law will impose strict time limits on your right to claim. If you do not take action within the relevant time limit, then you may lose the right to do so. Furthermore, in most cases, clients are far less likely to respond positively to a claim for work that was undertaken some time long ago.

As with any legal matter, if you have any doubts or concerns about your own situation then you should strongly consider obtaining legal advice.

A lawyer will be able to advise you about your options, and will improve the likelihood of your success. If you try to resolve the matter yourself, then there is a risk that something you do during the process could seriously undermine your claim.

In conclusion

The Australian Small Business and Family Enterprise Ombudsman may provide assistance or guidance for small businesses.

Fair Trading Agencies in each state and territory may also provide assistance.

Templates and examples to download in Word and PDF formats

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