Skip to content

Effective Debt Recovery Strategies for Online Bidding Platforms

Running an online bidding platform comes with several financial risks, especially where winning bidders fail to pay for items. If your business cannot recover the debt, absorbing the loss can be detrimental to the bidding platform’s cash flow. As a result, you must be aware of the debt recovery strategies available to you. This article will outline some key strategies your online bidding platform can use to recover debt. 

Problems with Non-payment 

As an online bidding platform, your business earns revenue by taking a percentage commission and/or transaction fee from successfully completed transactions. If a winning bidder fails to pay for an item they have won an auction on, there is no transaction for your platform to collect fees on. Prompt payment by winning bidders will:

  • generate steady revenue, cash flow and ensure continued profitability;
  • maintain platform integrity, as higher transaction volume will come from seller satisfaction and buyer confidence;
  • increase the efficiency of your online marketplace, since debt collection efforts will increase your operational costs; and
  • ensure your business is legally compliant with consumer protection laws.

1. Streamlined Checkout Process

One of the first and most effective ways to ensure payment is to prompt bidders to add a credit card as a payment method in their account settings on the platform. Usually, the details required are the:

  • card number;
  • expiration date; and
  • security code (CVV number).

Automatic Charging of Linked Credit Cards

By recording ​​credit card details before payment, your business can protect itself and sellers using the platform against non-payment. If payment information is on file, your bidding platform may automatically charge the outstanding amount owed from a transaction, depending on your current Terms and Conditions.

However, you should not request full credit card details, such as a bidder’s billing address, until an account user proceeds to checkout. This adds a layer of payment security to verify a purchaser’s identity and protect against fraud. 

Continue reading this article below the form
Loading form

2. Clear Terms and Conditions

Your platform’s terms and conditions should clearly set out the payment obligations of winning bidders. Furthermore, include the consequences of non-payment to discourage non-payment behaviours. These repercussions could include:

  • additional fees;
  • late payment penalties;
  • account restriction; and
  • account suspension. 

You should also limit users from placing new bids with their accounts if they have outstanding debts until their existing debt is settled. This will prevent any further loss to your business.

It is still important your Terms and Conditions of use comply with the Australian Consumer Law.

3. Effective Communication Regarding Payments

Automatic Invoicing

As soon as a winning bidder wins an auction for an item on the platform, your business should have an automated system that immediately generates and sends an invoice to promote quick payment. 

Automatic Payment Reminders

If the initial invoice is unpaid for a period of time, it would be helpful for your system to also send reminder emails and automatic notifications via the platform. By communicating with bidders with overdue payments, you can inform them of their payment obligations and the consequences of default.

Letter of Demand 

If the above communication attempts are unsuccessful, the next common step in the debt recovery process is to issue a Letter of Demand.

This involves sending a formal letter that requests the debt payment. It sets out the:

  • amount owing;
  • payment deadline; and
  • consequences if payment is not made, including recovery through legal proceedings.

If the amount owed by the bidder is significant and the above attempts at procuring payment are unsuccessful, you may consider initiating a claim in court against them. However, this should be a last resort, as litigation can be expensive and time-consuming. If you commence legal proceedings, you can anticipate the following costs:

  • court filing fees;
  • your lawyer’s fees; and
  • process server fees.
Front page of publication
How to Recover Unpaid Invoices

Whether you’re a small business owner or the Chief Financial Officer of an ASX-listed company, one fact remains: your customers need to pay you.

This manual aims to help business owners, financial controllers and credit managers best manage and recover their debt.

Download Now

Key Takeaways

Your online online bidding platform relies on timely payments for long-term success. As a result, you should invest in an effective debt collection process to encourage prompt payment, such as: 

  • requiring pre-authorisation of payment methods;
  • using clear terms and conditions;
  • implementing automated reminder systems; and 
  • enforcing consequences for non-payment, such as account restrictions or fees. 

If you are trying to recover a debt, explore preliminary options first before proceeding to legal action.
If you need help recovering owed debt, our experienced debt recovery 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 at 1800 485 742 or visit our membership page.

Frequently Asked Questions

Should I take a bidder to court for their debt?

In general, undertaking court proceedings to recover debt is a last resort. This is because it can be a time-consuming and costly process, especially if the debt you are owed is not significant.

Why is non-payment important to my online bidding platform?

When running an online bidding platform, payments from successful bids provide a steady stream of revenue for your business. Thus, non-payments harm your business financially and may result in additional costs from chasing up debt.

Register for our free webinars

ACCC Merger Reforms: Key Takeaways for Executives and Legal Counsel

Online
Understand how the ACCC’s merger reforms impact your legal strategy. Register for our free webinar.
Register Now

Ask an Employment Lawyer: Contracts, Performance and Navigating Dismissals

Online
Ask an employment lawyer your contract, performance and dismissal questions in our free webinar. Register today.
Register Now

Stop Chasing Unpaid Invoices: Payment Terms That Actually Work

Online
Stop chasing late payments with stronger terms and protections. Register for our free webinar.
Register Now

Managing Psychosocial Risks: Employer and Legal Counsel Responsibilities

Online
Protect your business by managing workplace psychosocial risks. Register for our free webinar.
Register Now
See more webinars >
Katherine Bi

Katherine Bi

Read all articles by Katherine

About LegalVision

LegalVision is an innovative commercial law firm that provides businesses with affordable, unlimited and ongoing legal assistance through our membership. We operate in Australia, the United Kingdom and New Zealand.

Learn more

We’re an award-winning law firm

  • Award

    2025 Future of Legal Services Innovation Finalist - Legal Innovation Awards

  • Award

    2025 Employer of Choice - Australasian Lawyer

  • Award

    2024 Law Company of the Year Finalist - The Lawyer Awards

  • Award

    2024 Law Firm of the Year Finalist - Modern Law Private Client Awards

  • Award

    2022 Law Firm of the Year - Australasian Law Awards