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By Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

The key to any business’ success is a strong relationship with its customers. But what happens when you supply the goods or services and the payment is not forthcoming? A relationship can quickly be eroded when the question of money is raised.

Internal Debt Recovery Process

Every business should have a clearly defined debt recovery process so that the debt collection team know when certain actions are to be taken against wayward customers who default on payment. This should ideally consist of two processes – an internal and an external process.

Internally your business’ debt recovery process should dictate when certain actions are to be taken. The debt recovery process should have been prepared with the input of many members of your business including sales who promote the business relationship, finance who know cash flow demands and the debt collection team who manage the collection process.

In an attempt to preserve the business relationship, it is common that after written reminders for payment are sent, that a telephone call be made to the customer to prompt payment or at least establish why payment has not been made. This is a good attempt to help preserve the business relationship despite default by your customer. However it is important that there be some discipline attached to these internal attempts so that debtors do not drag out payment of the debt and become stale.

Engaging External Assistance

If written reminders and calls do not elicit payment or a satisfactory response, then it is time for a letter of demand. A letter of demand is more than a reminder for payment, it should clearly set out the basis for the debt being due and state that unless payment is received by the nominated date; you intend to commence legal proceedings. Some businesses elect to enclose copies of the invoices issued for the debt outstanding to avoid the common delaying tactic of the customer requesting invoices but this is not essential. At around this point, your process should identify when it is time to engage an external debt recovery process.

Failing payment, a letter of demand from your lawyer elevates the situation by informing the customer that you have now sought external assistance in recovery of your debt and that the next step is indeed legal action. We find that a letter of demand at this point is of great assistance to you in getting payment, or at least an arrangement for payment, or has the effect of having the customer identify and advise you of the reason for non-payment.

Should no payment or satisfactory response be received from your customer then you have the option to commence legal action for recovery of the debt. A discussion with an experienced debt recovery lawyer on the commercial considerations of commencing legal action can then be had to assist you in your decision to file proceedings.

Contact Our Debt Recovery Team For Assistance

If you would like more information or advice in relation to insolvency, restructuring or debt recovery practice and procedure, contact Darrin Mitchell on 02 9806 7428 or or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:

Jeffrey Brown on (02) 9806 7446 or

Stephen Mullette on (02) 9806 7459 or