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5 Tips on Collecting Debt From Individuals

In Short

  • Begin by discussing the debt directly with the borrower to resolve the issue amicably.

  • Follow up with a formal written request to maintain a clear record of communication.

  • If necessary, consider amending the loan terms or seeking legal advice before pursuing legal action.

Tips for Businesses

Maintain clear documentation of all loans and agreements to support debt recovery efforts. Open and respectful communication with debtors can often lead to timely repayment. If disputes arise, consider negotiating revised payment terms or consulting a lawyer to explore appropriate legal options.


Table of Contents

Collecting debt from an individual can be challenging, especially from someone with whom you have a personal or close relationship. Generally, you will be trying to collect a debt from a friend, family member, or acquaintance who has borrowed the money for either personal or business purposes. Obviously, if you have a clearly documented loan with a written loan agreement or promissory note, you can take legal action to reclaim the sum owed; however, this is not usually the best approach. Generally, personal debts are not large sums of money, and taking legal action can be quite costly. As such, despite winning your case and being rewarded with a settlement, you may still owe money due to your legal expenses. This article outlines a few steps to consider when attempting to collect a personal debt.

Before you even attempt to collect a debt, you will hopefully have prepared for the worst and documented the loan, either with a loan agreement or a promissory note, when the loan is actually made. This will put you in a much stronger position when trying to collect your debt down the track.

2. Communicate

When seeking to recover a debt from an individual, it is often the case that you have an established relationship with the borrower. Rather than immediately engaging legal counsel to issue a demand for payment, it is advisable to first communicate directly with the counterparty. In many instances, a courteous request may be sufficient to encourage the borrower to fulfil their payment obligations without further action.

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3. Send a Formal Written Letter

It is important to follow up any verbal request for payment with a written letter formally requesting settlement. Maintaining a clear paper trail that demonstrates the borrower’s awareness of the outstanding debt and the repeated requests for payment can prove valuable in any subsequent proceedings.

4. Amend the Agreement

Rather than demanding payment straight away, you can consider:

  • amending the terms of the loan agreement;
  • extending the payment schedule so the borrower has more time to make the payment; or
  • reducing the interest rate.

This is often a better option than going to court to collect payment. If the borrower lacks the necessary funds, pursuing legal action is unlikely to result in a favourable outcome.

Alternatively, if monetary repayment is not feasible, consider negotiating alternative forms of settlement. This could involve: 

  • services or goods in lieu of cash; 
  • transfer of assets; or 
  • any other mutually beneficial arrangement. 

5. Seek Advice From a Lawyer

Obviously, there will be situations where legal action is the best recourse, such as when the amount owed is substantial and the borrower has the means but not the desire to repay the debt. In this sort of situation, a lawyer can advise you on the best course of action and can take the first steps to collect the debt (which generally involves sending a letter of demand).

LegalVision can assist with recovering debt from individuals. However, it is generally difficult to recover debt that involves collecting monies from a friend, family or acquaintance without a written agreement.

Key Takeaways

It is important to document personal loans clearly with a loan agreement or promissory note to strengthen your position. You should begin by communicating directly and courteously with the borrower before considering any legal action. Always follow up verbal requests for payment with formal written letters to maintain a clear record of your collection efforts. If the borrower is unable to repay immediately, consider amending the loan terms or negotiating alternative forms of settlement. Finally, seek legal advice when the debt is significant and the borrower has the means but not the willingness to repay.

If you have specific questions about collecting debt, our experienced dispute resolution lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1800 534 315 or visit our membership page.

Frequently Asked Questions

Do I always need a written loan agreement to collect a personal debt?

While not legally required, having a written loan agreement or promissory note significantly strengthens your position. It clearly outlines repayment terms and provides evidence if legal action becomes necessary.

When should I consider taking legal action to recover a personal debt?

Legal action is generally advisable when the amount owed is substantial, the borrower has the capacity to pay, but refuses to do so. In such cases, consulting a lawyer can help determine the best approach to recovery.

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Dimi Tong

Dimi Tong

Senior Lawyer | View profile

Dimi is a Senior Lawyer in LegalVision’s Disputes & Litigation team and a versatile legal professional with a strong background in commercial and corporate law, dispute resolution and property law. She earned both her Bachelor of Commerce (Finance) and Law from the University of New South Wales and has gained valuable experience across various roles, including in-house counsel and company secretariat.

Qualifications: Bachelor of Laws, Bachelor of Commerce, University of New South Wales. 

Read all articles by Dimi

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