27 Jan 2026Recovering business debt by chasing unpaid invoices is possibly the greatest curse of doing business. No matter how many reminders you send, your bills are ignored. It goes down the line – they say they can’t pay you as they are owed money, or they dispute the work done, and you can’t pay your own workers or contractors until you get paid.
Laws governing business dealings and recovery of business debt
There are legally enforceable ways to use the law to recover a business debt. The procedural rules for civil litigation over business debts come under the NSW Civil Procedure Act 2005 and the Uniform Civil Procedure Rules 2005.
A complex mix of legislation covers laws for contracts, leases, unfair trading and consumer protection.
These include the Contracts Review Act 1980 for unfair contracts, the Retail Leases Act 1994 for retail leases and related disputes, Personal Property Securities Act 2009 for security interests in personal property, and the Competition and Consumer Act 2010 for unfair trading practices and consumer protection.
Which laws apply depends on the contract terms, the industry, and whether the debtor is a business or a consumer.
The NSW State Debt Recovery Act 2018 deals with recovery of state debts, such as tax debts, fines and debts to NSW government authorities.
Legal methods for business debt recovery
The legal methods used to recover a business debt depend on the reasons for the debt, the amount, how long it has been since the first invoice and reminders were sent, and the financial situation of the debtor.
If the debt is disputed, court proceedings may involve evidence about the work performed, the contract terms, and any alleged defects, not just proof of the invoice.
Depending on the nature of the dispute, some business debt matters may be dealt with in the NSW Civil and Administrative Tribunal (NCAT). NCAT can determine certain types of claims up to $100,000, depending on the division and the legal basis of the dispute.
NCAT orders are enforceable, and can generally be registered and enforced through the Local Court if the other party does not comply. However, most straightforward unpaid invoice claims are commenced in the Local Court, District Court or Supreme Court, depending on the amount claimed.
In NSW the Local Court has two divisions for debt recovery. The Small Claims Division hears claims up to $20,000, while the General Division hears claims between $20,000 and $100,000. The District Court can determine debt disputes up to $1,250,000, or more if the parties agree, and the Supreme Court adjudicates amounts greater than that.
The Small Claims Division has simplified procedures designed to allow individuals to represent themselves, but higher courts have stricter rules and procedures, and the court recommends using a lawyer to present your case effectively.
Steps for recovering a business debt – Letter of Demand
If you are owed money and can’t get a response, the first step is to send a Letter of Demand. This is a formal demand for payment of the amount you are owed, including all the details of the work performed and stating that legal action will commence if payment is not received by a certain date.
Key documents usually include the contract or quote, invoices, delivery or work records, and written communications showing whether the debt is admitted or disputed.
If the Letter of Demand is ignored, you can engage a debt collection agency, which will approach the debtor to offer ways to settle the debt. The agency knows the laws regarding what a debt collector can and can’t do. For example, they can’t trespass, harass, mislead or be overbearing.
Filing a Statement of Claim
If the debt remains unpaid, the next step is to file a Statement of Claim at the registry of the court which has jurisdiction over the matter. A lawyer can help with the Statement of Claim to ensure it presents your case convincingly.
Once the Statement of Claim is filed, it must be served on the debtor, who then has 28 days to either file a defence or make a cross claim.
If no defence is filed, you can apply for a default judgment. If a defence is filed, a pre-trial review or conference may resolve the matter to avoid a court hearing. A debt recovery lawyer will investigate whether the debtor has assets and the capacity to pay, and present that in court.
Enforcing payment of a business debt
If a court orders payment, you can take several steps to enforce the judgment. These may include examining the defendant to assess their financial position, garnishing bank accounts or wages, or having the sheriff seize and sell the defendant’s property.
A debtor may make an application to the court for the debt be paid in instalments.
Additionally, if the debt meets the statutory thresholds – $10,000 for individuals and $4,000 for companies – you can issue a bankruptcy notice for an individual, or a statutory demand for a company, which can lead to insolvency proceedings if unpaid. Strict formal requirements apply, and legal advice should be obtained before taking this step.
Time limits for business debt recovery
For most debts, the time limit to commence proceedings is six years from the last written acknowledgment or partial payment by the debtor. However, limitation periods can vary depending on the state or territory and the type of claim.
The Australian Competition & Consumer Commission (ACCC) and the Australian Securities & Investments Commission (ASIC) have published a guide to assist debt collectors or creditors in understanding Commonwealth consumer protection laws. (Please see Debt collection guideline: for collectors and creditors, April 2021.)
Further reading on debts and debt recovery
For further information on debts and debt recovery, please see the articles below.
Can I become bankrupt to get rid of my debts?
Untying the knot: how are business loans and debts treated in separation or divorce?
High Court rules tax debt can be passed to spouse in divorce property settlement
Paying debts from a deceased estate
Trouble at the bank of mum and dad – the horror story edition on family loans
Could a bank enforce a loan agreement with a forged signature? Which case won?
