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Recovering debt

Most businesses will need to recover debt at some stage. Adopting credit control practices and a debt recovery procedure can help prevent debt and promptly collect outstanding payments.

To minimise your risk of debt, it is a good idea to review the terms and conditions in your contract. A contract should specify what goods and services are being supplied, a time for payment and what happens if a payment is not made on time. The contract should also state your business’ process for faulty goods or services and the circumstances where the contract can be terminated.

Before starting a relationship with new customers, perform a thorough background check before offering credit and clearly outline your terms of trade. It is good practice to only release goods when payment has cleared.

There are many debt recovery methods for those collecting debt. Firstly, the collector must ensure it is necessary and reasonable to contact the debtor. It is reasonable to provide information to the debtor about their account, make a demand for payment, offer a flexible repayment arrangement, make arrangements for repayment of a debt and so forth.

When recovering debt, be mindful that debtors need to be treated with respect, fairness and courtesy. The Australian Competition and Consumer Commission (ACCC) considers it unreasonable to frighten, intimidate, demoralise, tire out or exhaust the debtor. Embarrassing the debtor in front of other people is also considered unreasonable.

If payment is overdue, firstly send a friendly reminder to the customer and agree on the next payment date. In the event that the customer misses the next payment or there has been no contact, send the customer an overdue payment reminder. A final notice can be sent is the customer fails to meet extended payment dates.

Issuing a letter of demand is the next step if payments are not received within the set time. A letter of demand advises the debtor of the outstanding balance, provides a timeframe for action and informs the debtor that further legal proceedings may commence if the debt is not paid. This is usually the final reminder letter before taking legal action.


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