Debt Disputes, Collection and Recovery

All businesses rely on their customers and clients to pay for their goods or services on time and within your usual credit terms. Debt collection is paramount to any business’ success!

If you have a debtor then you are no doubt considering a debt collector or a lawyer.  Check out our article on ‘Should I use a debt collector or a lawyer?‘ to help understand the differences to help you make the right choice.

The first thing to get right is to make sure that you actually have ‘credit terms’ in the first place because if you allow a customer or a client to get into debt without them, you are reducing your chances of collecting a debt significantly.

If you don’t have credit terms and conditions then you’ll need a good commercial lawyer to draw them up for you, or perhaps review and update your old ones.  That will make good debt collection practice for the future.

If you don’t have a commercial lawyer then give us a call and we can put you in touch with one.

Below are some basic things you should ensure you include in your credit terms to maximise the recovering debts.

Payment Terms

Believe it or not many invoices are issued without actually providing any due date, they simply issue on the assumption it will be paid.

Make sure you include an actual payment term, usual 7, 14, or 30 days. The importance for debt collection is that the debt had a definite date it became overdue.

Administration Charge

Include an administration charge attached to receiving payments after being overdue. This is to cover the reasonable expenses to your business in processing each late payment.

It is usually a small charge and should not be aimed at penalising the debtor but be enough to cover your extra expenses of processing.

A Personal Guarantee

If you’re dealing with a company, especially a new or unknown one, make sure you include a personal guarantor. It is usually a director or shareholder.

Having a personal guarantee means that in the event the company fails to pay the debt then the person must pay what is owed to you personally.


Include a rate of interest for the amount that may become overdue for payment. The interest rate cannot be unreasonable and should be aimed at providing you reasonable compensation for your ongoing loss.

In many instances the chosen rate of interest is a reflection of credit card interest rates you might incur.

An Indemnity

Make sure your credit terms include that your customer will indemnify you against your legal costs of recovering the debt from them on a full indemnity basis.

This is to protect you from the need to engage a lawyer and commence legal proceedings. It helps recover as much as possible against your legal costs you may incur.

Security Agreement

Where appropriate, additional security should be sought by having the customer give you a security interest over their personal property.

This would provide access to sell personal property belonging to the debtor to pay for the debt owed to you.

The above are just some of the basic things to consider. Ensuring that they are properly and adequately covered in a commercial credit agreement is complex and requires expertise but is essential if you want to be provided the best possible protection against your debtors defaulting and will vastly improve your rate of recovery of any outstanding debt.

Of course, we always hope none of the debt collection terms will need to be used but it is a fact of business that you will encounter a debtor and need the services of a 'debt collector’ and some stage.

If you don’t have any credit agreement or terms then don’t despair, your debt is still recoverable and will generally follow the basic format set out below.

Letter of Demand

Almost all debt collection or recovery matters start with a letter of demand. No doubt you will have already made demands personally but a lawyer’s letter of demand will usually place your debtor on notice that you have taken the next step towards formal legal proceedings.

A well drafted letter of demand will set out; the debt amount; why it is owed; when it should be paid; and most importantly what are the consequences if the debt remains unpaid after the demand.

To read more about a demand letters and if you want us to send a formal Letter of Demand see our page here.


If the letter of demand doesn’t get the debt repaid in full then there may be a need to enter into some negotiations to either compromise the debt and recover as much as possible or allow the debtor to repay it over time.

We would always suggest any agreements you make with a debtor be put into writing and be signed by all parties to ensure further protection is afforded to you if the new promise to pay goes unanswered.

To read more about negotiation and other forms of alternative dispute resolution see our page here.

Legal Proceedings

If your debtor fails or refuses to pay the debt owed then the final step is to commence legal proceedings to recover the amount owing.

The starting point will depend on the amount of the debt and which jurisdiction of the court will apply.

Legal proceedings to recover a debt are often some of the simplest legal proceedings to bring and the debtor will likely have very limited ways to defend themselves.

To read more about legal proceedings then read our civil litigation page here.