Back to Basics: Do’s and Don’ts of Creditors

A creditor is someone – an individual or a business – owed money for goods delivered, or labour performed, or loans extended. Creditors are entitled to collect on money that are due them. Debtors are also obligated to pay what they owe. But, to be effective in collecting on debt, creditors need to remember the following do’s and don’ts.

Back to Basics: Do’s and Don’ts of Creditors

Do’s of a Creditor

1. Conduct a credit check.

Before entering into a contract, conduct due diligence. Look into your prospective client’s financial performance and payment history. A simple way to do this is to get your client’s Australian Company Number (ACN) or Australian Business Number (ABN).

2. Draft terms and conditions.

The terms and conditions should in clear and simple language understandable to both you and your client. This is the part of the contract where you cover everything you think will go wrong with the transaction. The terms and conditions should include your payment terms. Also include in the terms and conditions security clauses and a director’s guarantee.

3. Prove your debts.

Put everything in writing. Keep copies of the invoices, payment reminders, and letters you sent to your clients. Record debt settlements. Also make sure your communications are in writing. Print emails. It is your responsibility to keep the records of your transactions, and not your client’s.

4. Be proactive.

Do not rely on the client’s obligation to pay you. Send invoices on time. As you would expect your client to pay on time, they also expect you to send an invoice on time. Remind them of their unpaid dues. If your client is unable to pay on time, negotiate a payment plan. If, after two reminder notices, your client still does not pay, send a letter of demand.

5. Be fair.

We all know that there are many reasons why clients fail to pay on time or in full. Despite hitting a wall with your debtor, it is always a must to continue to treat each other with fairness. Your main purpose is to recoup unpaid payments. But it is always a good idea to foster and maintain harmonious business relations.

Don’ts of a Creditor

1. Don’t forget to send invoices on time.

This cannot be over emphasized. The debt collection process starts with you and not with your client. It is thus your responsibility to send invoices on time. Otherwise, you run the risk of the client not acting upon anything because there was no prodding for payment from you.

2. Don’t immediately charge late payment interest.

You, as a creditor, do not have an automatic right to charge interest over unpaid debts. The late payment interest should be explicitly stated in your terms and conditions. Otherwise, you don’t have the right to recoup interests.

3. Don’t disclose your debtor’s personal information.

Treat your debtor’s personal information with caution. They should not be disclosed to other parties (meaning those people who are not parties to your contact, e.g. your debt collection agency). Personal information must be collected only by lawful and fair means. Also, do not disclose personal information in your social media accounts.

4. Don’t misrepresent consequences of non-payment.

There are clients who threaten their debtors of litigation or garnishment. Do not be this client. Do not do this unless that is what would happen. If you don’t have the intention of taking your debtor to court, then don’t make him believe you are going to do so. Misrepresenting the consequences also puts you at risk of breaching laws. Remember, debtors have their rights and these rights are also protected by law.

5. Don’t harass your debtor.

To maintain good business relations and in line with Australian debt collection guidelines. Don’t use accusatory or vulgar language. Avoid using threats, force, or intimidation when trying to collect unpaid debts. Don’t be the creditor they want to avoid doing business with.


All creditors are entitled to recover bad debts. All debtors are also obligated to pay off their debts. Even if it is the debtor’s obligation to pay, it is the creditor who should be proactive in pursuing the debt collection. After all, it is the creditor’s cash flow that would be affected when there is non-payment or late payment of debts. Creditors must remember the do’s and don’ts. Collecting on a debt can be easy, or difficult, depending on your behaviour as a creditor. If you are facing difficulties collecting debts, you should contact professionals to do the work for you.

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