Every business has been in a position where it has been owed a debt and send off a letter of demand. Whether the debt is owed by an individual or a company, you are going to want to recover it as quickly, efficiently and cheaply as possible. Unfortunately you can’t generally go straight “to court”. There’s a process to go through before you actually get to litigation. Furthermore, going straight to court is expensive. There are a number of steps you can take to recover the debt without going to court. We’ve set these out in this article.

1. Call up and Ask for Repayment

There’s no point in commencing legal action before you’ve simply asked for the debt to be repaid. It’s not uncommon for both individuals and businesses to just forget to pay their debts. A polite phone call followed up by an email can do wonders! There’s no need to send a letter of demand right off the bat.

2. Send a Letter of Demand

Sending a letter of demand is really the first legal step to take to collect your debt. It’s simply a letter requesting that the debt in question be repaid by a certain date. A letter of demand serves as a finally “warning” to a recalcitrant debtor that you intend to enforce payment, and it also allows the lender to commence legal proceedings down the track. Because a letter of demand is a formal document, if you do decide to start legal proceedings down the track, you will be able to demonstrate to the court that you took appropriate and reasonable steps to try and get the debtor to repay the debt.

There are a number of elements you must include in a letter of demand. It needs to be clearly addressed to the borrower – if it’s an individual then you should address it to the individual, if it’s to a company you should address it to an officer of the company (i.e. a director). You need to date the letter, so that it’s clear when you took the step of sending a letter of demand. You need to set out clear details of the debt you want repaid and provide a repayment date.

Finally, it’s important that the letter of demand advises the borrower that if the debt is not repaid by the repayment date set out in the letter, you will commence legal action to recover it. Bear in mind, if you’re not in a position to take legal action (either because the debt is too small to be worth it, or because you don’t have the cash to fund a legal case), think carefully before making this assertion!

3. Have a Solicitor or Debt Collection Agency Send a Letter of Demand

If you send a letter of demand you’ve drafted yourself and you don’t get a response, you can consider having a solicitor or debt collection agency send a letter of demand. A solicitor will obviously charge a legal fee for their service, and a debt collection agency will usually charge a fee for their services or take a percentage cut of any fees recovered.

Working with a solicitor or debt collection agency gives added gravitas to your attempts to reclaim a debt. The borrower will know you’re serious. It’s important to note that if your debt is owed by a company, it’s for over $2,000 and they don’t respond to your letter of demand, your solicitor will be in a position to issue a statutory demand. This will give you grounds to have the borrower would up and a liquidator appointed if the borrower doesn’t comply with the demand or file a defence within 21 days.

4. Negotiate Repayment

Generally a borrower will respond in some manner to your letter of demand. You then have to decide whether to negotiate repayment of the debt or not. If the borrower isn’t in a position to pay the full debt upfront, you could consider entering into an agreement for him or her to repay in instalments. It makes sense to achieve a solution with works for both parties – ending up in court over a debt, particularly if it’s not very large, will mean you could end up paying a substantial amount in legal fees.

4. Alternative Dispute Resolution (ADR)

ADR, which includes mediation, conciliation and arbitration, is a way for you to resolve your dispute, and attempt to collect you debt, without going to court. It’s generally cheaper (you won’t need a barrister, for instance), and quicker. ADR can get underway before or after the legal proceedings have started. Your solicitor can advise you as to whether using ADR is a good idea in your individual circumstances.


There are many ways of trying to collect a debt. Obviously you’ll have to issue a letter of demand, but there are other steps you can take to avoid going to court. If you need legal assistance, call us today speak with a lawyer.

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