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Bad Debts : How to avoid them in Business

Effective debt management is essential for any business to succeed.  One of the most common problems businesses face is outstanding debts.  When customers or clients fail to pay their bills, it can impact a business’s cash flow, causing them to struggle to pay their own bills.  That is why having a clear message and the ability to manage debt effectively is crucial.  Any business can minimise the need for debt recovery by implementing a few simple credit management strategies.  This article provides some tips for business owners that will assist in minimising unpaid invoices.

Strategies to avoid Bad Debts 

Structure of Payments

Businesses that provide goods or services that involve long lead times or delivery over extended periods should structure payments from clients to ensure that payments are received early and prior to the business incurring expenditure, such as ordering materials.

Frequency of Invoices

Businesses should ensure invoices are issued frequently.  Regularly issuing invoices ensures that clients are aware of the work being done and the amount owed. Allowing work in progress to accumulate may result in clients being surprised by the quantum of any invoice and  become less inclined to pay any such invoice.

Follow Up to Bad Debts

Businesses should follow up unpaid invoices immediately.  Our experience shows that invoices that are allowed to become aged are much less likely to be paid.  There is also the risk that any debtor becomes more difficult to locate.


In circumstances where businesses provide clients with credit or long periods to pay invoices, such businesses should consider taking security to enforce payment.  Security may take the form of security over personal or business assets registered on the Personal Property Security Register (PPSR), bank guarantees, letters of credit (useful in overseas transactions), mortgages, personal guarantees, parent company guarantees and the like.  Brander Smith McKnight Lawyers can advise businesses on the appropriate security.

Overseas Transactions

Businesses selling goods or services overseas should ensure that there are appropriate security arrangements in place to ensure payment can be enforced, such arrangements include bank guarantees or letters of credit.  Businesses selling goods or services overseas should also ensure that all contracts include a clause that the jurisdiction of the contract is within Australia.

The above strategies can improve a business’s cash flow, reduce financial stress and improve customer relations.  In some circumstances payment may still not be made and in those circumstances Brander Smith McKnight can assist with debt recovery strategies.

Debt Recovery

Even businesses that implement excellent credit control may have bad debts.  In those circumstances debt recovery procedures should be implemented promptly.  The lawyers at Brander Smith McKnight can assist any business to ensure that bad debts are collected using the debt recovery and enforcement processes of the court.  The debt recovery processes of the court provide businesses with the rights and means to collect such debts and provide the basis on which any demand and negotiation may be commenced.  Brander Smith McKnight recovers 90% of bad debts without the need for court litigation.

Call us to arrange a free 20 minute no obligation consultation that includes case evaluation and cost estimate.

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