1. Prove the debt before escalating
Collect the signed contract, purchase orders, invoices, delivery evidence, variations, correspondence and payment history. Identify the debtor’s correct legal entity and check whether the contract contains dispute-resolution, notice, interest or jurisdiction clauses.
2. Separate a disputed debt from a cash-flow problem
A debtor saying “we cannot pay” creates a different strategy from a debtor saying “we do not owe it”. A genuine contractual dispute may require evidence and litigation. A liquidity problem may justify security, instalments or insolvency-related options.
3. Letter of demand
A useful demand identifies the legal basis of the debt, amount, supporting invoices, contractual interest if claimed, a clear payment deadline and the proposed next step. Overstatement can reduce credibility and create costs problems later.
4. Negotiate security, not just promises
If a debtor asks for time, consider whether the settlement should include an acknowledgement of debt, instalment dates, default acceleration, costs, interest and security. The appropriate terms depend on the debtor and amount.
5. Court proceedings
Where the debt is disputed or no acceptable arrangement is reached, ordinary court proceedings may be appropriate. Forum, costs, evidence and enforcement prospects should be assessed before filing. Obtaining judgment is only useful if there is a realistic enforcement path.
6. Statutory demands for company debts
For an undisputed debt owed by a company at or above the statutory minimum, a Corporations Act statutory demand can be a powerful insolvency procedure. It is not a shortcut for trying a genuinely disputed debt and carries strict form and timing requirements.
7. Enforcement after judgment
Depending on the debtor and court, enforcement options can include examination, garnishee processes, seizure or insolvency procedures. Asset and solvency information should influence the recovery strategy from the beginning.
Commercial questions before spending more
- Is the debtor solvent?
- Is there security?
- Are there competing creditors?
- Does the debtor have a genuine counterclaim?
- What will enforcement cost?
- Is a discounted immediate settlement economically better?