If you are owed money for goods or services, the first step in attempting to recover it is generally to send a letter of demand to the other party setting out the amount of money outstanding and giving them a defined period of time within which to settle the matter by paying you the money owed or face legal action.

Letter of Demand

The letter of demand is sent by you if you are owed the money (the creditor) or your lawyer and warns the person owing the money (the debtor) that if they don’t pay the debt within a certain time period (often seven days) they will be sued in court to recover the debt.

A letter of demand should be the last letter a creditor sends before issuing court proceedings. While letters of demand are not court documents they are often an effective means of forcing the debtor to take action.

It is a good idea to contact us first to ascertain whether it is prudent to proceed with court proceedings and this will usually depend on the size of the debt. Naturally if the sum owed is small it maybe uneconomic to pursue the debt by engaging a lawyer or even pursuing the debt at all. You must however ensure that in enforcing your rights to recover the debt you act within the law.

Principles of debt collection fairness

When sending a letter of demand, you should be careful not to harass the debtor or send a letter which is designed to look like a court document.

You must not pursue a person for a debt unless you have reasonable grounds for believing the person is liable for the debt.

Time limits

A creditor has a limited period of time to sue for a debt. In most instances for debts owed this will be 6 years.

If the debtor has made no payments towards the debt or has not acknowledged in writing that they owe the debt for a period of 6 years from when the debt arose then the debt may no longer be recoverable.

Disputed debts

The debtor has the right to dispute a debt and may do so on the grounds that:

  • it is not their debt;
  • they have already paid the money;
  • they disagree with the amount of the debt; or
  • it is an old debt and they haven’t made a payment for at least 6 years, no court judgment has been entered against them and they haven’t admitted in writing that they owe the debt in that time.

If the debt is disputed then you, as the creditor, may have no alternative but to commence legal proceedings or to seek to negotiate a compromise with the debtor.

When a your lawyer becomes involved

If you, as the creditor, are not willing to negotiate or wait for payment, you may wish to contact us to assist with pursuing the debt.

If you know the debt is due and payable and you want to commence legal proceedings it is prudent to have a legal professional assist you and represent you in court to recover the debt. If the size of the debt does not warrant that, then we may still be able to help you to negotiate a payment plan that is manageable to the debtor and acceptable to you.

It is not in the debtors interest to ignore your claim and risk the additional costs of the legal fees and interest on top of the original debt .By following the correct process we can help bring the matter to a conclusion satisfactory to you.

New customer – credit application process

Before you take on a new customer you should have the correct systems in place to ensure that you are able to assess the customer’s credit position.

Do you have a credit application process for your new customers?

Your credit application and terms of trade should provide you with security over the goods which you have sold to the customer and, if the customer is a corporate entity, ensure that the directors of the company provide you with personal guarantee. You must however ensure that you register any security over goods on the Personal Property Securities Register and we recommend that you speak with a legal professional to assist you with this process to ensure that the registration is not void.

If you do not have a system in place then contact us and we will assist you with putting a system in place to protect you and provide you with security for monies owed to you. It is important that you have the correct system and documentation in place before you do business with a new customer and before you provide the customer with any credit.


You should contact us to discuss your legal rights and obligations if you are owed money or even if you owe money to someone else who is threatening court action.

If you would like more information or require assistance or advice on how to proceed in debt recovery matters please contact us on 02 9264 6888 or email mail@nhlegal.com.au.