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Business Victoria (http://www.business.vic.gov.au) State Government of Victoria (http://www.vic.gov.au)
Home (http://www.business.vic.gov.au) / Money, profit and accounting (http://www.business.vic.gov.au/money-profit-and-accounting) / Getting paid on time (http://www.business.vic.gov.au/money-profit-and-accounting/getting-paidon-time)
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 External link (opens in same window) (http://www.consumer.vic.gov.au/businesses/licensed-businesses/debt-collectors/banned-debt-collection-practices).
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.
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 again 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 External link (opens in same window) (http://www.ppsr.gov.au/Pages/ppsr.aspx) (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.
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.
Debt collection and dispute resolution contacts You can seek help from: The Victorian Small Business Commissioner External link (opens in same window) (http://www.vsbc.vic.gov.au) for mediation and investigation assistance for disputes over the debt Victorian Civil and Administrative Tribunal VCAT - Civil Disputes External link (opens in same window) (https://www.vcat.vic.gov.au/) Consumer Affairs Victoria External link (opens in same window) (http://www.consumer.vic.gov.au/businesses/licensed-businesses/debt-collectors) for fair debt collection practices.
Not what you're looking for? Sources of finance (http://www.business.vic.gov.au/money-profit-and-accounting/raising-funds-for-your-business/sources-of-finance) How to negotiate payment terms with suppliers (http://www.business.vic.gov.au/money-profit-and-accounting/managing-suppliers/how-to-negotiate-payment-terms-with-suppliers) Records management for small business (http://www.business.vic.gov.au/money-profit-and-accounting/financial-processes-and-procedures/records-management-for-small-business)
What's next? Cash flow forecasting (http://www.business.vic.gov.au/money-profit-and-accounting/getting-paid-on-time/cash-flow-statement-projection-with-template) How to write an invoice (http://www.business.vic.gov.au/money-profit-and-accounting/getting-paid-on-time/invoicing)
Was this page helpful? Thank you, your feedback is valuable to us. Handy tools Financial policy and procedure manual template (DOC 191.5 KB) (http://www.business.vic.gov.au/__data/assets/word_doc/0007/1009519/Financial-policy-and-procedure-manual-template.doc) Friendly reminder email template (DOCX 36.33 KB) (http://www.business.vic.gov.au/__data/assets/word_doc/0009/1009890/Friendly-reminder-e-mail-template.docx) Overdue email template (DOCX 34.3 KB) (http://www.business.vic.gov.au/__data/assets/word_doc/0010/1009891/Overdue-e-mail-template.docx) Final notice email template (DOCX 34.5 KB) (http://www.business.vic.gov.au/__data/assets/word_doc/0011/1009892/Final-notice-e-mail-template.docx) Follow up contact script (DOCX 34.04 KB) (http://www.business.vic.gov.au/__data/assets/word_doc/0003/1009893/Follow-up-contact-script-template.docx) Letter of demand template (DOCX 34.33 KB) (http://www.business.vic.gov.au/__data/assets/word_doc/0004/1009894/Letter-of-demand-template.docx) New customer engagement letter template (DOCX 38.51 KB) (http://www.business.vic.gov.au/__data/assets/word_doc/0005/1009895/New-customer-engagement-letter-template.docx)