October 31, 2023

Small Business Owners Guide Collecting Debt in Australia

Denym Bird
CEO of Paidnice

Debt collection is a complex yet essential aspect of business management that small business owners in Australia often grapple with. It's not a one-size-fits-all process, and the legal landscape can vary from state to state. In this comprehensive guide, we'll explore the debt collection process in Australia, focusing on the general approach while providing insights into state-specific variations.

Whether you're in New South Wales, Victoria, Queensland, or elsewhere, understanding the legal options available is crucial for successful debt recovery.

The Varied Landscape of Debt Collection in Australia

Australia, a vast and diverse country, presents a unique challenge when it comes to debt collection, primarily due to the fact that each state and territory has its own set of legal considerations. While there are overarching Australian laws, it's essential for small business owners to recognize the significant influence of the specific state in which their business operates.

The legal framework governing debt collection in Australia encompasses both federal and state legislation. At the federal level, the Australian Consumer Law (ACL) sets out regulations related to consumer transactions, including debt collection practices. However, state and territory laws play a pivotal role in determining how debt collection is carried out, especially when dealing with businesses.

Let's dig into the general process while highlighting state-specific tips and insights for small business owners:

New South Wales (NSW)

In New South Wales (NSW), debt collection activities are primarily governed by both state and federal laws. The primary frameworks include the Commercial Agents and Private Inquiry Agents Act 2004 (NSW), the Australian Consumer Law (ACL), and the Competition and Consumer Act 2010 (Cth).

If you're a small business owner in NSW, you need to ensure that any debt collection agents you engage with are licensed under this legislation. Additionally, be aware of the maximum fees and commissions that debt collectors can charge, as these are regulated to protect both the debtor and the creditor.


Victoria's regulatory framework is guided by the Victorian Debt Collection Guidelines. These guidelines provide a comprehensive overview of the ethical and legal standards for debt collection agencies.

Small business owners in Victoria should familiarize themselves with these guidelines to ensure that their debt collection efforts adhere to the state's specific requirements.


Debt collection in Queensland is governed by the Debt Collectors (Field Agents and Collection Agents) Act 2014. Like in other states, the Act requires that debt collectors be licensed.

However, Queensland has its own unique nuances when it comes to permitted actions, the treatment of debtors, and permissible fees.

Western Australia

Small business owners in Western Australia should be aware of the Debt Collectors Licensing Act 1964, which governs the licensing and conduct of debt collectors. Understanding this Act is essential for compliant debt collection activities in the state.

This legislation lays out the licensing requirements and the conduct expected from commercial agents. Familiarity with the Act is crucial for ensuring that your debt collection efforts in Western Australia are in compliance with the law.

South Australia

In South Australia, debt collection activities are generally regulated by the Consumer and Business Services (CBS), a division of the Attorney General's Department. The key legislative framework often cited for debt collection in this state is the Fair Trading Act 1987.

This Act outlines various forms of conduct that are deemed to be "unfair," and this extends to activities around debt collection. It is essential for businesses engaging in debt collection to understand and comply with this legislation to ensure that their practices are neither misleading nor deceptive and are in line with the Act's requirements.

Understanding your obligations under South Australian law is important for maintaining ethical standards and legal compliance when pursuing unpaid debts.

Compliance is crucial to avoid misleading or unfair conduct towards debtors. Small business owners in South Australia should be cautious about engaging in any practices that could be seen as misleading or unfair to debtors.

Tasmania, Northern Territory, and Australian Capital Territory

In Tasmania, debt collection is regulated by the Fair Trading Act 1990. The Northern Territory operates under the Consumer Affairs and Fair Trading Act 1990, and in the Australian Capital Territory, it is the Fair Trading (Consumer Affairs) Act 1973 that applies. Each jurisdiction may have its unique set of rules and requirements.

Understanding the legal framework in your specific state or territory is paramount for successful debt collection as a small business owner in Australia. It ensures that you adhere to the state's unique regulations, licensing requirements, and ethical standards while pursuing unpaid debts.

What is the Legal Debt Collection Process in Australia?

Start with writing a Letter of Demand

The initial step in debt collection often involves sending a Letter of Demand. This formal communication outlines the debt, including the amount owed, due date, and any accrued interest or fees.

The letter also specifies a deadline for payment. While a Letter of Demand can be an effective tool for smaller debts, its success may depend on the debtor's willingness to cooperate.

Move to Negotiation and Mediation

Before escalating the matter, consider negotiating with the debtor. This may involve flexible repayment terms or finding a mutually agreeable solution. Mediation is another avenue for dispute resolution, and in Australia, Small Claims Tribunals can assist in mediating disputes without going to court.

For larger debts, negotiation and mediation can be more fruitful than immediately pursuing legal action.

If needed, take Legal Action

When all other methods fail to yield results, legal action may become necessary. The process for pursuing legal action, including filing a claim and attending court hearings, may vary depending on your state.

It's important to consult with a legal professional to navigate this process effectively. While effective, it's typically more time-consuming and costly, making it a more suitable option for substantial debts or uncooperative debtors.

What are your Legal Options to collect debt in Australia?

Small business owners in Australia have several legal avenues to explore when collecting unpaid debts. However, it's vital to understand the potential costs and risks associated with each option:

Find the State-Specific Regulations

Be aware of state-specific regulations and consider consulting a legal expert who understands the laws in your area. Each state in Australia may have unique provisions that could impact the debt collection process.

Try Small Claims Tribunals

In various states, Small Claims Tribunals offer a cost-effective and efficient way to resolve disputes for smaller debts. They are designed to be user-friendly and can provide a quicker resolution compared to the court system.

Take Court Action

For larger debts or when debtors fail to comply with tribunal orders, court action may be necessary. Court action can be effective but tends to be more expensive and time-consuming. Legal representation is often advisable in such cases.

What are the Costs and Risks in collecting debt?

Before proceeding with any legal debt collection method, it's crucial to evaluate the potential costs and risks. Legal action can be expensive, particularly when you require legal representation. There's no guarantee of success, and additional costs may be incurred without recovering the debt. Weigh the financial implications against the debt's value and consider alternative dispute resolution methods.

Small business owners in Australia face unique challenges when it comes to debt collection. The legal options available, including Letters of Demand, negotiation, mediation, Small Claims Tribunals, and court action, offer a range of tools to recover unpaid debts.

Understanding the specific legal requirements in your state and consulting with legal professionals as needed is essential for a successful debt collection strategy. By navigating the complex legal landscape with the right knowledge and guidance, you can protect your rights and achieve successful debt recovery.

Denym Bird
CEO of Paidnice
Denym is a software entrepreneur and writes about accounts receivables management for small business.