Recovering an unpaid debt: from letter of demand to court

An unpaid invoice is a common and frustrating problem for any business. The good news is that a debt can usually be recovered through a clear, escalating process, and most matters resolve well before a courtroom is involved. The key is to move steadily and keep your position strong at each step.

Start by checking the debt.

Before chasing payment, make sure the debt is sound. Confirm the agreement or terms the debt is based on, that the goods or services were delivered, and that the amount is correct and not genuinely disputed. A debt that rests on clear terms and good records is far easier to recover.

The letter of demand.

A well drafted letter of demand is often all it takes. It sets out the debt, the basis for it, and a firm deadline to pay, and it signals that you are prepared to take the matter further. Many debtors pay once they see that the creditor is organised and serious.

Escalating the matter.

• Where the debtor is a company and the debt is not genuinely disputed, a statutory demand under the Corporations Act 2001 (Cth) can be a powerful step
• Where the debtor is an individual or the debt is disputed, court proceedings in the appropriate Victorian court may be the path, with the court chosen to match the size of the claim
• Once judgment is obtained, enforcement options such as a warrant or a garnishee can be used to actually collect the money

Do not wait too long.

Debts do not last forever. Under the Limitation of Actions Act 1958 (Vic), a simple contract debt generally must be pursued within six years. Leaving a debt unaddressed can weaken your position and, eventually, remove the right to recover it at all.

The practical takeaway.

Recovering a debt is about applying steady, well judged pressure and choosing the right step for the situation. Often a single firm letter does the work. When it does not, having a clear path to escalate, and the records to back it, is what gets you paid.