Preventing unpaid debt
Trying to recover debt from customers or other businesses can be stressful and time consuming.
You can reduce the risk of having unpaid invoices or bills by doing some homework before you enter into an agreement with customers or other businesses.
Here are some suggestions to help you prevent unpaid debt:
Have a good invoicing system
Having a good invoicing system plays an important role in collecting money.
- Start by making sure your invoices look professional and are easy to understand. Read our tips and advice on how to create an invoice.
- Research each payment method that you offer other businesses and your customers when paying for your goods and services. Before deciding on the payment method you'll accept understand the benefits and disadvantages of each. Some payment methods carry more risk than others in needing to chase up unpaid debt. It's important to choose payment methods that meet the needs of your business finances, as well as your customer.
- Set payment terms and have payment policies in place to help ensure that payment is received on time. Make sure everyone is clear about timeframes and expectations for payment. Talk to your accountant for tips on how to get the best out of your invoices or read our Setting payment terms topic.
- Make invoicing a regular part of your business activity. This will not only help with your cash-flow, but you'll be able to keep a track of your clients more easily.
Know who you're dealing with
Before you enter into an agreement with other businesses, ask the right questions and do some research.
Find out as much information about their business, operations and finances as you can. Knowing that the business is legitimate and solvent may increase your confidence in dealing with them.
- Check the Australian Business Number (ABN) details of other businesses that you deal with to make sure they’re a legitimate and still in operation.
- Check the ASIC registers to confirm that the information you’ve been given is true. You can report a business to ASIC if you think they’re acting illegally.
- Stay up-to-date on business related scams. Knowing what scams are targeting small business may prevent you from being caught out.
Understand your rights
An important part of running your business successfully is understanding the laws that apply to debt protection. Make sure you're up-to-date with laws on:
Seek advice from a solicitor or business adviser if needed.
Put it in writing
Put any agreements in writing so everyone can refer to it if there’s a dispute. Get legal advice before creating or signing a contract, especially if you aren’t sure you fully understand it.
Look for the warning signs
Being able to identify the early warning signs that your client may not pay you can help you tackle the problem before it gets out of hand. Read our list of warning signs that you might not paid.
Download a free copy of the Debt collection guideline for collectors and creditors from the Australian Competition & Consumer Commission (ACCC) website for more information on preventing and managing debt.
More useful resources
- Read the Australian Small Business and Family Enterprise Ombudman's tips to improve contracting and avoid disputes.
- Check out our preventing and managing disputes information for independent contractors.
- Download the ASIC Business Checks app available for smartphones and tablets on iTunes and Google Play. It helps you ask the right questions and reduce risks when dealing with businesses.