15 April 2026 Building & Construction

Debt Recovery

4 Steps to Avoid Spending Money to Recover Money...

Business gets busy. When things are going well parties tend not to worry about their terms of engagement. Works can sometimes start without the parties even defining what the works are, or what the payment terms are. It’s usually only when things go wrong that the parties turn to the fine print on the back of an invoice (if there are even any terms and conditions at all!) But is it all too late then?

To ensure you’re operating a profitable and efficient business, you must have your affairs in order. A big part of this is getting your terms of engagement and payment terms right.

Here’s some steps to help make sure you get paid on time.

#1 – Review your terms and processes

Whilst it may not seem like the most productive use of time, it is critical to set some time aside each week (if not daily) for administration tasks. This may include general business tasks of paying bills, filing paperwork, checking invoices, or reviewing ‘back of house’. What is ‘back of house’? These are the jobs that usually sit in the “I’ll get to it one day” basket. Pick one of the jobs in this basket and attack it head on.

Some suggestions for ‘back of house’ that will help you manage your cashflow and debt as part of your ordinary business:

Review your terms of engagement of contractors and suppliers – do they still accord with your business practices?
Review your induction of contractors and suppliers – do they understand your processes and practice?
Review your policies such as Code of Conduct, Confidentiality, IP, IT
Review your invoicing processes to ensure prompt invoicing and payment

#2 – Review your invoicing procedures

In looking at your debt recovery processes, the first place to start is your invoicing procedures. Sounds simple, but surprisingly it is often overlooked. Some considerations include:

How do you check if your invoice is in the correct legal entity or individual’s name and the contact details and invoice is sent to the correct address (or email address)?
Does the invoice accurately describe all the services or goods being provided? How do you manage when there is a change in the services or goods provided?
Are your contractors and/or suppliers required to accept overarching terms of engagement which clearly set out your processes and procedures? If so, how are they accepted? Do they need to sign a hardcopy or is an email sufficient? If you have a software system, is a digital tick in an acceptance box sufficient? Or is performance of the works deemed acceptance?
Does your invoice clearly show the payment options, payment terms and the due date?
If you charge extra for credit cards, does your invoice identify the charge you impose and is that consistent with the charge you actually pay for those credit card payments?
How does a contractor or supplier know what happens if payment is late? Do your terms of engagement or invoice clearly identify that you can stop the engagement, charge interest (and identify the interest rate), recoup from other work orders and/or engage a third party to carry out the works or supply the goods?
Do you have a system in place to track overdue invoices?
How soon do you follow up invoices when payment has not been received by the due date?
Do you keep accurate records of your attempts to follow up payment?
Do you have a simple dispute resolution process to resolve payment disputes set out in your terms of engagement?

#3 – Be confident you’ve ticked all the boxes

Ensuring you have satisfied the above will assist you if you wish to seek debt recovery at either VCAT or a Court, as you will be able to easily identify:

The contractor and/or supplier was inducted to ensure they understood your processes and business
The intentions of the parties (i.e., what were the services, what were the obligations and what was the agreement)
That the invoices were clear and delivered to the appropriate ‘entity’
That the payment terms and conditions were clearly noted on the invoice and understood by all parties
You have a standard process for following up invoices and you followed any dispute resolution process

#4 – Understand your recovery options

What does it mean to issue court proceedings for a debt due?

If you find yourself with an unpaid debt, your first consideration is whether to issue proceedings at the Victorian Civil and Administrative Tribunal (if the debt was incurred in ‘trade and commerce’) or in a Court (which could be at the Magistrates Court if the debt is below $100,000, or the County or Supreme Court). There are pros and cons for any avenue you choose, with the most obvious being:

The advantage of VCAT is it is less formal and you do not require a lawyer, but the disadvantage is VCAT cannot normally enforce a payment order, so you would need to seek enforcement orders at the Magistrates Court if the contractor/supplier doesn’t pay after a VCAT Order is made.
The advantage of a Court is that it can also enforce an Order, but its processes are more costly and complex, so you may require legal representation.

Before Commencing Proceedings

It is always recommended to try to resolve your own claim for a debt before issuing proceedings. Below are some suggested steps:

Issue a clear letter of demand which identifies the engagement, the services performed, the payment due and the amount claimed as outstanding (and note that you are considering legal proceedings if payment is not received by a set date).
If payment is still not received, you should try to have a mediation – this might be informal with just the senior managers of each party, or it may be more formal with a mediator from an independent third party.
If the matter still cannot be resolved, you will need to apply to the appropriate Tribunal or Court, depending on where you decide to issue your claim. For the purposes of this article, we will briefly outline the process at VCAT, as a lot of debt recovery for building works is heard there.
- You will need to prepare a Points of Claim, which details your claim for why you believe you are owed money, and pay the appropriate filing fee.
- You must make sure the Points of Claim is prepared accurately and any requirements to serve it on the other party are followed in accordance with the rules and regulations of the Tribunal or Court.
- The debtor will then prepare and file a Defence, which will detail why they believe they do not have to pay you.
- Depending on the size of the debt, the Tribunal will list the matter for a Directions Hearing (where the debt is significant), setting a timetable for the proceeding including preparation of evidence and a hearing date, and a mediation if the Tribunal believes it would be beneficial - or list the matter directly for a Hearing (where the debt is considered small or straightforward).

Before considering issuing debt recovery, you must also consider the time and expense of doing so (and that is another reason it is so important to get your business processes correct in the first place). You will need to consider:

What are your legal costs, and do the legal costs outweigh the debt you are recovering?
Can the debtor actually pay? There is no point issuing debt recovery if the person/entity cannot pay, so you should carry out some searches to check first:
- Property Searches – do they own property that could be sold to pay your debts
- Litigation Searches – are they already in litigation for other debt
- National Personal Insolvency Index – are there any pending bankruptcy proceedings
Will you need to obtain enforcement orders, which will cost you even more money and time? For example:
- Seizing property – where the Sheriff seizes and sells the debtor’s personal property
- Garnishee order – for example, an employer is directed to pay you from the debtor’s wages (although the amount must ensure they still have living money from their wages)
- Winding up the debtor’s company – this is where the company’s assets are liquidated and the company will no longer exist (which is usually effective if the company is asset-rich but cash-poor)

Need legal advice?

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