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Debt recovery glossary

Debt recovery has a vocabulary of its own. This plain-English glossary explains the terms you are most likely to come across — whether you are recovering an account or responding to one.

These definitions are written in plain language for general understanding. They are not legal or financial advice — for guidance on a specific account or situation, contact us or speak with a qualified adviser.

Abandonment: The voluntary surrender of a legal right or claim. In debt recovery, a creditor may abandon a debt — typically by writing it off and taking no further steps to pursue it. Abandonment does not legally extinguish the debtor's obligation, but it does mean the creditor has chosen to forgo recovery. The decision is usually made when the cost of pursuit outweighs any realistic return.
ACCC & ASIC debt collection guideline: The joint guideline published by the Australian Competition and Consumer Commission and the Australian Securities and Investments Commission that sets the standard for how debt collection must be conducted in Australia.
Accounts receivable: The total amount owed to a business by its customers for goods or services already delivered but not yet paid for. Also called trade receivables or simply receivables.
Accrual accounting: An accounting method under which revenue is recognised when it is earned and expenses when they are incurred, regardless of when cash actually changes hands. Under accrual accounting, an unpaid invoice appears as a receivable on the creditor's books from the date it falls due — meaning a debt can be recorded as outstanding even before any recovery steps are taken.
Acknowledgement of debt: A written or verbal statement by a debtor confirming that they owe the debt. An acknowledgement is significant because it can restart the limitation period — meaning the creditor's right to commence legal proceedings is renewed from the date of acknowledgement, even if the debt is otherwise old. Debtors should be careful about making acknowledgements in relation to debts they believe may be statute barred.
Acknowledgment letter: A written communication confirming that a debt, payment, dispute, or hardship application has been received and is being dealt with. In Australian debt collection practice, acknowledgment letters provide a paper trail and demonstrate compliance with privacy and procedural obligations. They are also significant because an acknowledgment of a debt by the debtor can restart the limitation period, renewing the creditor's right to commence proceedings.
Adjudication: A formal dispute resolution process available under security of payment legislation (such as the Building and Construction Industry Security of Payment Act in various states). It provides a fast, binding interim determination of a payment dispute in the construction and building industry, without going to court.
Administration: In the context of company insolvency, administration refers to the appointment of an external administrator to take control of a company's affairs. The most common form in Australia is voluntary administration, in which an insolvent company's directors appoint an administrator to investigate the company's position and consider alternatives to liquidation. During administration, creditors are generally prevented from taking enforcement action against the company.
AFCA: The Australian Financial Complaints Authority — a free, independent dispute resolution scheme for complaints about financial products and services, including some debts connected to them.
Ageing report: A report that groups outstanding invoices by how overdue they are — for example current, 1–30 days, 31–60 days, and beyond. It is the clearest single picture of what a business is owed and for how long.
Agent: A person or company authorised to act on behalf of another (the principal). In commercial debt recovery, the collection agency acts as agent for the creditor — it contacts debtors, negotiates and collects on the creditor's behalf without owning the debt (unless it has been purchased). The agent's authority is typically set out in the service agreement between the creditor and the agency.
Allonge: A slip of paper attached to a bill of exchange or promissory note when there is insufficient space on the original instrument for additional endorsements. An allonge becomes part of the instrument to which it is attached and must be firmly affixed. Rarely encountered in modern commercial practice but may arise when examining historic or trade-finance instruments.
Amortisation: The gradual reduction of a debt through regular scheduled payments over an agreed term. Each payment covers interest accrued and reduces the outstanding principal. A fully amortised debt reaches a zero balance at the end of the term without requiring a lump-sum payoff. The same word is also used for the write-down of intangible assets, but in a debt-recovery context it refers to loan repayment structure.
Antecedent debt: A pre-existing debt owed before a particular transaction took place. The concept is significant in insolvency law when a creditor receives payment for an antecedent debt shortly before the debtor enters administration or bankruptcy — such a payment may be challenged by a liquidator as a voidable preference if it gave that creditor an advantage over other creditors.
Apparent authority: Authority that arises not from an express grant but from the conduct of the principal, which leads a third party to reasonably believe that the agent has authority to act. If a creditor holds out a person as having authority to negotiate debts, the creditor may be bound by arrangements that person makes, even if actual authority was absent. Distinguished from actual authority, which is expressly granted.
Appropriation of payments: The right to direct which debt a payment is applied to when a debtor owes multiple debts to the same creditor. The debtor may specify on payment; if they do not, the creditor may appropriate the payment to whichever debt they choose. Rules differ slightly between jurisdictions, and the original contract or terms of trade may specify a priority order.
Arrears: Amounts that are overdue and unpaid. A debtor 'in arrears' has failed to meet one or more scheduled payment obligations by their due date. Arrears can accumulate across invoices, instalments under a payment arrangement, or periodic obligations under a contract. The longer arrears remain unaddressed, the more difficult and costly recovery typically becomes.
Assignment of debt: The transfer of ownership of a debt from one party to another. When a debt is assigned, the new owner steps into the shoes of the original creditor and can pursue recovery in their own right.
Bad debt: A debt that a creditor has determined is unlikely to be recovered and has written off for accounting purposes. Writing off a bad debt is an accounting entry and does not extinguish the legal obligation to pay.
Balance of probabilities: The standard of proof in civil proceedings in Australia, including debt claims. A party succeeds if the court finds their case is more probable than not — that is, more likely than not to be true. This is a lower threshold than the criminal standard of 'beyond reasonable doubt.' A debt claim must be established on the balance of probabilities to obtain a court judgment.
Banker's reference: A written reference provided by a debtor's bank confirming their credit standing or financial reliability. Historically used in trade credit assessment, a banker's reference gives a prospective creditor some assurance about a customer's ability to meet payment obligations. Its use has declined as formal credit reporting has become more accessible, but it remains relevant in some commercial credit contexts.
Bankruptcy: A legal process applying to individuals who cannot pay their debts, administered by the Australian Financial Security Authority. It is distinct from corporate insolvency, which applies to companies.
Bankruptcy notice: A formal document issued under the Bankruptcy Act 1966 (Cth) and served on a judgment debtor, requiring them to pay a judgment debt of at least $10,000 within 21 days. Failure to comply with a bankruptcy notice is an act of bankruptcy, which entitles the creditor to apply to the Federal Circuit and Family Court of Australia for a sequestration order. A bankruptcy notice can only be issued where there is an unsatisfied court judgment — it cannot be used to demand payment of a trade debt alone.
Bill of exchange: A written order from one party (the drawer) directing another (the drawee) to pay a fixed sum to a specified person (the payee) on a stated date or on demand. Bills of exchange are governed in Australia by the Bills of Exchange Act 1909 (Cth) and are used primarily in trade finance. A dishonoured bill of exchange can give rise to a debt claim.
Breach of contract: A failure to perform one or more obligations under a binding contract without lawful excuse. Breach of contract is the legal foundation of most commercial debt claims: the debtor agreed to pay by a certain date and did not. The remedies for breach include damages (the amount owed plus any consequential loss) and, in some contracts, termination of the agreement.
Capital works fund: In strata title and body corporate schemes, a fund maintained separately from the administrative fund to meet the costs of major repairs, maintenance and capital improvements to common property. Lot owners contribute to the capital works fund through periodic levies. Arrears of capital works fund levies are recoverable by the body corporate in the same way as other strata debts.
Cash flow: The movement of money into and out of a business over a given period. Positive cash flow means more money is coming in than going out; negative cash flow creates pressure on a business's ability to meet its obligations. Poor cash flow — often caused by late-paying customers — is the most common cause of business payment failure. Managing accounts receivable effectively is one of the most direct ways to protect cash flow.
Caveat: A formal legal notice lodged against a real property title, warning others of a claimed interest in the property. In debt recovery, a caveat may be lodged where a creditor holds a charge or other interest in a debtor's real estate. It prevents the property from being sold or refinanced without the caveator's knowledge or consent. A caveat is not the same as a judgment or a mortgage — it is a protective notice, not an enforcement mechanism in itself.
Caveat emptor: Latin for "let the buyer beware." A legal principle meaning the buyer is responsible for checking the quality and condition of a purchase before completing a transaction.
Cession: The legal transfer of a debt or right from one party (the cedent or original creditor) to another (the cessionary or assignee). When a debt is ceded, the cessionary acquires the right to recover the debt in their own name. The term is used interchangeably with 'assignment of debt' in many commercial contexts. The debtor must generally be notified of a cession for it to be effective against them.
Charge-off: An accounting entry that records a debt as unlikely to be collected and removes it from a business's active receivables. Also called a write-off. A charge-off is an accounting step only — it does not extinguish the legal obligation to pay, and the debt may still be pursued or sold.
Charging order: A court order that attaches a judgment debt to a specific asset owned by the judgment debtor, most commonly real property or shares, preventing the debtor from dealing with it until the debt is paid. In Australian jurisdictions, charging orders over land may be registered on title. Once registered, a charging order can be enforced by an order for sale of the charged asset if the debt remains unpaid.
Chose in action: An intangible property right that can only be enforced through legal proceedings rather than by taking physical possession. A debt is a classic chose in action: the creditor has a right to receive payment, but they cannot physically seize the money — they must sue to enforce it. Choses in action can be assigned, allowing a third party to step into the creditor's shoes and pursue the debt.
Circularise: To contact known or likely creditors of an insolvent debtor by circular letter, inviting them to register their claims in an insolvency proceeding. Liquidators and trustees in bankruptcy commonly circularise creditors identified from the debtor's books and records. A creditor who does not receive a circular may still be able to register a claim but should act promptly on learning of the insolvency.
Claim: A formal assertion of a right to payment. In debt recovery, a claim is the basis on which a creditor pursues a debtor — setting out the amount owed, the basis for the obligation, and the demand for payment. A claim may be made informally (in a letter of demand) or formally (in court proceedings). A creditor must be able to substantiate their claim with evidence to succeed in any dispute or legal action.
Collateral: An asset pledged by a borrower or debtor as security for a debt. If the debt is not repaid as agreed, the creditor may be entitled to seize and sell the collateral to recover the amount owed. Common forms of collateral in commercial lending include real property (a mortgage), vehicles (registered on the PPSR), and inventory or equipment. A creditor with collateral is a secured creditor.
Collection rate: The percentage of referred or outstanding debt that is successfully recovered by a collection agency within a given period. A higher collection rate indicates more effective recovery, though rates vary significantly with the age, quality and documentation of the referred accounts.
Commercial debtor: A business that owes money to another business, typically for goods or services supplied on credit. Commercial debtors are the primary focus of Merion's recovery work.
Commercial paper: Short-term, unsecured debt instruments issued by creditworthy businesses to finance short-term liabilities such as payroll or accounts payable. Commercial paper is typically issued at a discount to face value and matures within a few months. It is a wholesale market instrument — individual trade creditors are not directly affected unless the debtor company fails to roll over its commercial paper and a liquidity crisis results.
Commission: A fee charged as a percentage of the amount successfully recovered. A commission model ties the recovery firm's fee to the result it delivers for the client.
Composition: An agreement between a debtor and two or more creditors under which the creditors agree to accept less than the full amount owed — often a percentage of the total — in full and final satisfaction of their claims. A composition requires the agreement of all participating creditors and, once accepted and performed, releases the debtor from the remainder of each participating creditor's claim.
Compulsory liquidation: The winding up of a company by court order rather than by a voluntary resolution of its members. A creditor may apply to the court to wind up a company that is insolvent, typically after serving a statutory demand for payment and receiving no response within 21 days. Compulsory liquidation is the ultimate legal escalation against a company debtor that has failed to pay.
Concurrent liability: Liability that arises simultaneously under two or more different legal heads — for example, both in contract and in tort (negligence) — for the same loss or obligation. In debt recovery, concurrent liability can arise where a failure to pay also constitutes a misrepresentation or a breach of duty of care. The plaintiff may pursue both heads but cannot recover double compensation for the same loss.
Conditional fee: A fee arrangement in which payment of the fee, or the amount of the fee, depends on the outcome of the matter. In commercial debt recovery, a commission-based model is a form of conditional fee: the agency is paid only if it successfully recovers money. Conditional fee arrangements must comply with applicable professional rules and be disclosed to the client in writing.
Consent order: A court order made with the agreement of all parties to the proceedings. In debt recovery, consent orders are commonly used to formalise a payment agreement that the parties have reached privately — converting it into a binding court order without the need for a contested hearing. If the debtor then fails to comply with the consent order, the creditor can enforce it using the mechanisms available to judgment creditors.
Corporate veil: The legal principle that separates the identity and liabilities of a company from those of its directors and shareholders. In some circumstances — such as fraud, insolvent trading, or where a personal guarantee exists — courts may 'lift the veil' and hold individuals personally liable for the company's debts.
Costs order: A court order requiring one party to pay all or part of the other party's legal costs. In Australian civil litigation, costs typically follow the event — meaning the losing party pays — though the court has a discretion based on the conduct of the parties and the circumstances of the case. For creditors, a favourable costs order can substantially increase the total amount recovered.
Counterclaim: A claim brought by a defendant against a plaintiff arising from the same or related transaction as the plaintiff's original claim. In debt proceedings, a debtor may counterclaim — for example, claiming the goods supplied were defective — which, if successful, may reduce or eliminate the amount the creditor can recover. A counterclaim must be raised in the defendant's response to the proceedings.
Court order: A legally binding direction issued by a court. In debt recovery, a court order commonly requires a debtor to pay a specified sum by a specified date. Failure to comply with a court order can expose the debtor to enforcement action — such as a garnishee order, a writ of execution, or, in some circumstances, contempt of court. A court order is obtained either by judgment after a contested hearing, or by consent of the parties.
Credit application: A form completed by a customer before credit is extended to them. A well-drafted credit application captures legal entity details, director information, trade references and signed acknowledgement of terms of trade.
Credit limit: The maximum amount of credit a supplier is willing to extend to a customer at any one time. Managing credit limits is a key part of keeping receivables healthy.
Credit note: A document issued by a supplier to a customer acknowledging that the customer's account has been reduced by a specified amount. Credit notes are issued for reasons such as returned goods, overbilling, or an agreed price adjustment. In a debt recovery context, outstanding credit notes must be identified and applied before the correct net amount owed is determined and pursued.
Credit report: A document that summarises an individual's or company's credit history, compiled by a credit reporting body. In Australia, the main credit reporting bodies are Equifax, Illion and Experian. A credit report shows details such as credit applications made, credit accounts held, repayment history, and any defaults or judgments recorded. Creditors use credit reports to assess the risk of extending credit to a new customer. Individuals are entitled to request a free copy of their own credit report from each reporting body once per year.
Creditor: The party to whom money is owed. In a recovery matter, the original creditor is the business that supplied the goods or services and is owed payment.
Creditor's statutory demand: The specific prescribed-form document (Form 509H under the Corporations Regulations 2001 (Cth)) used to issue a statutory demand on a company. The demand must identify the debt with sufficient particularity, be accompanied by any supporting affidavit where the debt is not based on a judgment, and be served correctly at the company's registered office. A defective statutory demand may be set aside by a court on the debtor company's application.
Cross-claim: A claim brought by one party to litigation against another party on the same side — for example, by one co-defendant against another. A cross-claim differs from a counterclaim (which is against the opposing party) and a third-party claim (which joins a new party). Cross-claims are relevant in multi-debtor or multi-creditor debt disputes where liability must be apportioned between parties.
Crystallisation: The moment at which a floating charge converts to a fixed charge, typically triggered by the debtor's insolvency, appointment of a receiver, or another event specified in the charge document. Once a floating charge crystallises, the chargeholder obtains a fixed security over the assets the debtor holds at that moment. Crystallisation is significant because it determines the chargeholder's priority relative to other creditors.
Damages: Monetary compensation awarded by a court to a party who has suffered loss as a result of another party's breach of contract or other civil wrong. In a straightforward debt claim, damages equal the amount owed plus interest and, where applicable, costs. In more complex matters — such as where a failure to pay caused consequential business losses — the creditor may claim additional damages, subject to the rules on remoteness and mitigation.
Days beyond terms (DBT): A measure of how many days past the agreed payment due date an invoice remains unpaid. A rising DBT across a debtor's account is an early indicator of payment difficulty.
Days Sales Outstanding (DSO): A measure of how long, on average, a business takes to collect payment after a sale. A rising DSO indicates the receivables ledger is ageing, which increases recovery difficulty and cash-flow pressure.
Debenture: A document issued by a company that creates or acknowledges a debt, typically secured over some or all of the company's assets by way of fixed and floating charges. Debenture holders are secured creditors who rank ahead of unsecured creditors in an insolvency. The terms of a debenture govern when repayment is due, the interest rate, and the events of default that trigger enforcement rights.
Debt bondage: The unlawful practice of requiring a person to perform work or services to repay a debt, where the value of the work is not reasonably applied to reduce the debt or the terms are coercive. Debt bondage is a form of modern slavery and is prohibited under Australian criminal law. It is entirely distinct from lawful debt recovery, which operates within defined legal and regulatory limits.
Debt collection agency: A third-party firm engaged by a creditor to recover overdue debts on its behalf. The agency acts as agent for the creditor and does not own the debt unless it has been purchased.
Debt purchase: An arrangement in which a recovery firm buys a portfolio of outstanding accounts outright from a creditor, for an agreed price, and then owns and pursues those accounts itself.
Debt waiver: A formal agreement by a creditor to permanently release all or part of an outstanding debt, extinguishing the debtor's obligation to pay that amount. A debt waiver differs from a debt settlement — where the debtor typically pays a reduced amount — in that no payment is required in exchange for the waiver. Creditors must document waivers carefully, as a poorly worded waiver may be interpreted more broadly than intended.
Debt-to-equity ratio: A financial metric that compares a company's total liabilities to its shareholders' equity, calculated as total debt divided by total equity. A high ratio indicates that a company is significantly leveraged — it relies heavily on borrowed money relative to its own capital. In a credit assessment context, a high debt-to-equity ratio can signal elevated financial risk and increased likelihood of payment difficulty.
Debtor: The party who owes money. In commercial recovery the debtor is usually another business, though a debt may also be guaranteed by an individual.
Declaration of trust: A document in which a person declares that assets held in their name are held on trust for the benefit of another (the beneficiary). In debt recovery, a declaration of trust is relevant when a debtor claims that assets apparently in their name are actually held for someone else — meaning those assets may be beyond the reach of the creditor's enforcement action, depending on the trust's validity and timing.
Deed of company arrangement (DOCA): A binding agreement between a company and its creditors, negotiated during voluntary administration, that sets out how the company's affairs will be dealt with. A DOCA may allow the company to continue trading while paying creditors over time, as an alternative to liquidation. Creditors vote on whether to accept the proposed DOCA or wind up the company instead.
Default judgment: A court judgment granted automatically when a defendant fails to respond to a claim within the time required by the court's rules. In debt recovery, if a creditor commences proceedings and the debtor does not file a defence or acknowledge the claim within the prescribed period, the court may enter judgment in the creditor's favour without a hearing. A default judgment has the same force as a contested judgment and can be enforced using standard enforcement mechanisms.
Default listing: A record added to a credit reporting body indicating that a debt has been overdue for a defined period. Defaults can affect a debtor's credit file. They can only be listed where the rules under the Privacy Act have been followed.
Default notice: A formal written notice issued to a debtor advising them that they are in default of a payment obligation. A default notice is often a required step before legal proceedings can be commenced or a default is listed on a credit file.
Defensive costs: Legal costs incurred by a defendant in defending a claim brought against them. If the claim is dismissed or the defendant succeeds, a court will usually order the plaintiff to pay the defendant's costs. The risk of having to meet a debtor's defensive costs is one reason creditors should ensure a debt is properly documented before commencing legal proceedings.
Demand draft: A negotiable instrument drawn by one bank on another, payable immediately on presentation, without requiring the drawee bank to have received the funds in advance. Unlike a personal cheque, a demand draft is guaranteed by the issuing bank and cannot be dishonoured for insufficient funds. Demand drafts are used in trade finance and international transactions where payment certainty is required.
Demand letter: See Letter of demand. A formal written request for payment issued to a debtor before legal proceedings are commenced. A demand letter sets out the amount owed, the basis for the claim, and a timeframe for response. It is a standard step in pre-legal debt recovery and is often a practical (or legal) requirement before court action can be initiated.
Director: A person appointed to manage the affairs of a company. In Australian law, directors owe duties to the company including the duty to prevent insolvent trading — that is, to avoid incurring debts the company cannot pay. In debt recovery, directors are relevant because they may be personally liable for company debts in certain circumstances: where they have signed a personal guarantee, where the company has traded while insolvent, or where other specific statutory provisions apply.
Director's guarantee: A personal guarantee given by a company director to a creditor, making the director personally liable for the company's debt if the company defaults. Unlike a general personal guarantee, it is specifically tied to the director's role and often triggers automatically if the director ceases to hold that role. Creditors routinely pursue directors under personal guarantees when the corporate debtor has insufficient assets to satisfy the debt.
Disclaimer: In insolvency, the power of a liquidator or trustee in bankruptcy to disclaim onerous property — including unprofitable contracts, leases or assets that carry liabilities exceeding their value. Disclaimer terminates the company's rights and obligations under the disclaimed contract. Creditors affected by a disclaimer may lodge a claim in the insolvency for the loss they suffer as a result.
Disclosure: The obligation to produce relevant documents and information to the other party in litigation. In Australian civil proceedings, parties must generally disclose documents that are relevant to the issues in dispute, including documents that may harm their own case. Failure to comply with disclosure obligations can result in adverse findings, costs orders, or other sanctions imposed by the court.
Dishonoured cheque: A cheque that a bank refuses to pay because the drawer's account has insufficient funds, the account has been closed, or a stop payment instruction has been placed. A dishonoured cheque creates an immediate debt equal to the face value of the cheque, and the payee may have additional remedies under state fair trading legislation. Issuing a cheque known to have no funds can be an offence under criminal law in some jurisdictions.
Dispute: A genuine objection to a debt — that it is not owed, the amount is wrong, or it is not recognised. When a genuine dispute is raised, recovery activity is generally paused while the matter is reviewed.
Distraint: A historical legal remedy that allowed a creditor to seize and hold a debtor's goods as security for payment of a debt, without a court order. Distraint has been largely abolished for commercial debts in Australia and is no longer a practical recovery mechanism in most contexts. Modern equivalents for secured creditors include the exercise of PPSR security interests or the appointment of a receiver. Mention of distraint in older contracts or correspondence reflects its historical use.
Distress for rent: A historical common-law remedy that allowed a landlord to seize a tenant's goods found on the leased premises to recover unpaid rent, without first obtaining a court order. Distress for rent has been substantially abolished or restricted in Australian jurisdictions and is no longer a practical remedy for commercial landlords recovering arrears. Modern landlords must generally pursue unpaid rent through the courts.
Domicile: The jurisdiction in which a person is considered to have their permanent home and to which they intend to return. Domicile is distinct from ordinary residence and is relevant in cross-border debt matters because it can affect which country's courts have jurisdiction and which country's law governs the debt. A judgment creditor pursuing an overseas debtor must consider the debtor's domicile when planning enforcement.
Drawee: The party on whom a bill of exchange or cheque is drawn — the party directed to pay the specified sum. In the case of a cheque, the drawee is the bank on which the cheque is drawn. If the drawee refuses to pay (dishonours the instrument), the holder has a right of recourse against the drawer and any endorsers. See also: Drawer.
Drawer: The party who creates and signs a bill of exchange or cheque, ordering the drawee to pay a specified sum to the payee. The drawer is primarily liable on the instrument if it is dishonoured. In a standard cheque, the drawer is the account holder who writes and signs the cheque. See also: Drawee.
Dunning: The systematic process of sending a sequence of progressively firmer payment reminders to a debtor over time, beginning with a polite reminder and escalating through formal notices to threats of legal or collection action. Dunning is a standard stage of pre-legal recovery and forms the foundation of most accounts receivable management workflows. Under the ACCC and ASIC debt collection guideline, the frequency, tone, and timing of dunning communications must not be oppressive or harassing.
Duress: Unlawful pressure applied to a person to induce them to enter into a contract or take a particular action. A contract entered into under duress is voidable at the option of the party who was coerced. In debt recovery, a debtor may allege duress if they claim to have entered a payment agreement under improper pressure — making it essential that all arrangements are freely agreed and properly documented.
Duty of care: A legal obligation to exercise reasonable care to avoid causing foreseeable harm to another person. In a debt recovery context, a duty of care may arise where a creditor or collection agency takes steps that could foreseeably damage the debtor — for example, disclosing debt information improperly or applying pressure that causes quantifiable harm. Breach of a duty of care can give rise to a negligence claim.
Earnest money: A deposit paid by a buyer to a seller as evidence of genuine intent to complete a transaction. Earnest money is distinct from a security deposit held against performance obligations — it is specifically a token of the buyer's commitment at the negotiation stage. If the transaction does not proceed through the buyer's default, the earnest money is often forfeited; if the seller defaults, it may be returned doubled.
Elected creditor: In voluntary administration, a creditor appointed by the creditor body to sit on the committee of creditors. The committee of creditors may give directions or information to the administrator, approve the administrator's remuneration, and consider the proposed Deed of Company Arrangement. Being an elected creditor gives a creditor direct input into the administration process.
Encashment: The process of converting a negotiable instrument — such as a cheque, bill of exchange, or bank draft — into cash by presenting it to the drawee bank or a financial institution for payment. Encashment can be refused if the instrument is defective, the account has insufficient funds, or a stop payment has been placed. A dishonoured instrument may give rise to a separate debt claim against the drawer.
Encumbrance: A charge, lien, mortgage, or other claim over an asset that affects the owner's ability to deal freely with it. In debt recovery, encumbrances are relevant when assessing whether goods, vehicles or other assets can be reclaimed or a security interest enforced — for example, whether a PPSR registration gives a creditor priority over the asset. An encumbrance does not prevent ownership but limits what the owner can do with the asset without addressing the claimant's interest.
Enforcement warrant: A court order that authorises enforcement action against a debtor who has not satisfied a judgment debt. Depending on the jurisdiction, this may permit seizure of assets, redirection of funds, or other enforcement mechanisms.
Equitable assignment: An assignment of a debt or other right that is effective in equity but has not met all the requirements for a legal assignment — most commonly because written notice has not yet been given to the debtor. An equitable assignee can still enforce the debt, but must join the original creditor as a party to any proceedings. Once notice is given, the assignment generally becomes effective at law.
Equitable lien: A right to retain or assert a claim over property belonging to another person until a debt owed in connection with that property is satisfied. An equitable lien arises from the principles of equity rather than from a contract or statute. In commercial contexts, equitable liens may arise where a party has expended money on or in connection with property owned by another — for example, a contractor who has improved a debtor's asset may have an equitable lien over it.
Estoppel: A legal doctrine that prevents a party from asserting a position that is inconsistent with a previous representation or conduct, where another party has reasonably relied on that representation to their detriment. In debt recovery, estoppel may arise where a creditor has represented to a debtor that a lesser sum will be accepted in full satisfaction, preventing the creditor from later claiming the balance.
Event of default: A specified event or condition in a loan agreement, debenture or commercial contract that entitles the creditor to demand immediate repayment of the full outstanding balance, without waiting for the scheduled maturity date. Common events of default include non-payment of an instalment, insolvency of the debtor, breach of a financial covenant, or a change of control. The specific events are negotiated and set out in the contract.
Evidence in chief: The primary evidence given by a witness in support of the party who called them — presented before cross-examination by the opposing party. In Australian civil proceedings, evidence in chief is often given in written affidavit form, filed in advance of the hearing. In a contested debt matter, evidence in chief typically establishes the debt's existence, the amount, and the basis on which it is claimed.
Ex parte: Describing a court proceeding or application made by one party without the other party being present or given notice. Some urgent applications — such as interim injunctions — may be granted ex parte where notifying the other party would defeat the purpose of the order. An ex parte order may later be challenged by the absent party at a hearing where both sides are represented.
Examination summons: A court-issued summons requiring a person — typically a director, officer, or associate of an insolvent company — to attend court and answer questions about the company's financial affairs under oath. In Australian insolvency proceedings, a liquidator may apply for an examination order under the Corporations Act 2001 (Cth) to uncover hidden assets, related-party dealings, or evidence of insolvent trading. Creditors can also be permitted to examine relevant persons in certain circumstances.
Execution: The enforcement of a court judgment, typically by directing a court officer (such as a sheriff or bailiff) to seize and sell a debtor's assets in order to satisfy the judgment debt. Other forms of execution include garnishee orders (redirecting third-party funds) and charging orders over real property. A judgment creditor must first obtain a writ or warrant of execution before enforcement steps can be taken.
External administration: A collective term for the formal insolvency processes that place a company under the control of an external administrator rather than its directors. The main forms are voluntary administration, liquidation, and receivership. Each has different objectives and different consequences for creditors.
External dispute resolution (EDR): A formal, independent process for resolving complaints between consumers or small businesses and financial services firms or credit providers, without going to court. In Australia, the Australian Financial Complaints Authority (AFCA) is the primary EDR scheme for financial services. A complaint lodged with AFCA can pause enforcement action while the dispute is considered, and participation is free for complainants.
Factoring: A form of debtor finance in which a business sells its accounts receivable to a finance company (the factor) at a discount, in exchange for immediate cash. The factor then collects payment directly from the debtors. Factoring can improve cash flow but reduces the amount ultimately received for each invoice.
Financial counsellor: A qualified professional who provides free, independent and confidential advice to people experiencing financial difficulty. In Australia the National Debt Helpline (1800 007 007) is staffed by financial counsellors.
Financial hardship: A situation in which paying a debt in the way it is currently due would leave a person unable to meet reasonable, necessary living expenses. Hardship may be temporary or longer-term.
Fixed charge: A security interest over a specific, identifiable asset — such as a particular machine, vehicle or piece of real estate. A fixed charge attaches to the specific asset at the time it is created, and the debtor cannot deal with that asset (sell it, encumber it further) without the chargeholder's consent. Fixed charges are contrasted with floating charges, which cover a changing pool of assets. In an insolvency, fixed charge holders have priority over floating charge holders and unsecured creditors.
Floating charge: A security interest over a class of assets that changes from time to time — such as inventory, trade debtors or work in progress. Unlike a fixed charge, a floating charge allows the debtor to deal with the charged assets in the ordinary course of business (selling stock, collecting receivables) until the charge 'crystallises.' Crystallisation typically occurs on insolvency or another specified event, at which point the floating charge converts into a fixed charge over the assets then held by the company. Floating charges must be registered on the PPSR to be effective against third parties.
Freelancer debt recovery: The process of recovering unpaid invoices owed to sole traders or freelancers for work or services provided. Sole traders have the same legal rights as any other creditor to pursue outstanding amounts.
Garnishee order: A court order requiring a third party — typically a bank or employer — to pay money owed to a debtor directly to the creditor. It is one mechanism for enforcing a court judgment.
Goodwill: The intangible value attached to an ongoing business relationship — reputation, customer loyalty, future business. In the context of debt recovery, goodwill risk refers to the concern that aggressively pursuing a customer or debtor may damage a valuable commercial relationship. Balancing recovery with relationship preservation is a common consideration in B2B debt collection.
Guarantor: A person or entity who agrees to be personally liable for another party's debt if that party defaults. In commercial lending and trade credit, a director or business owner is often required to provide a personal guarantee. If the primary debtor does not pay, the creditor may pursue the guarantor directly.
Hardship arrangement: A payment arrangement adjusted to take a person's genuine financial difficulty into account, so that repayments remain sustainable alongside essential living costs.
Hardship policy: A creditor's documented approach to supporting debtors experiencing genuine financial difficulty. A hardship policy sets out what a creditor will consider and how they will respond to a hardship request.
Hardship variation: A formal change to the terms of a credit contract or payment obligation, granted to a debtor who demonstrates genuine financial hardship and requests accommodation. Under the National Consumer Credit Protection Act 2009 (Cth), regulated consumer credit providers are legally obliged to consider hardship applications; similar obligations apply under some state-based commercial codes. In commercial debt recovery, hardship variations are negotiated arrangements rather than statutory rights, but creditors are encouraged to consider them before escalating to legal action.
Indemnity: A contractual obligation by one party to compensate another for losses, damages, or liabilities arising from specified events or actions. In commercial debt recovery, indemnity clauses in credit agreements or guarantees may oblige a director or guarantor to indemnify the creditor for all costs of recovery — including legal fees, collection commissions, and court costs — not merely the principal debt. An indemnity can be broader than a guarantee because it covers losses rather than just the primary obligation.
Insolvency: The state of being unable to pay debts as and when they fall due. A company may enter voluntary administration, liquidation or receivership; an individual may enter bankruptcy. The type of insolvency affects what recovery options remain.
Interest on judgment: Interest that accrues on an unpaid court judgment at a rate prescribed by the relevant court's rules, running from the date of judgment until the debt is fully satisfied. In Australia, each jurisdiction sets its own post-judgment interest rate — typically set by reference to the Reserve Bank of Australia's cash rate plus a margin. Creditors pursuing judgment debts should always calculate and claim accrued judgment interest when enforcing.
Interest on overdue invoices: Additional charges applied when an invoice is not paid by its due date. Interest may be contractual — set out in the terms of trade — or, in some circumstances, may be available under statute. The right to charge interest must be clearly established before it is applied.
Interlocutory injunction: A temporary court order made before a final hearing, restraining a party from doing something to preserve the status quo while a dispute is resolved. In a debt recovery context, a creditor might seek an interlocutory injunction to prevent a debtor from disposing of assets before judgment is obtained — for example, where there is evidence of phoenix activity or imminent asset-stripping. Australian courts require a serious question to be tried and a balance of convenience in favour of the applicant.
Invoice: A document issued by a supplier to a customer requesting payment for goods or services delivered. An invoice sets out what was supplied, the amount due, and the payment terms.
Judgment debt: A debt formally recognised by a court judgment. A judgment creditor has access to enforcement mechanisms — such as a garnishee order or a writ of execution — that are not available before judgment.
Judgment debtor: A person or company against whom a court has made a money judgment that remains unsatisfied. Once a creditor obtains judgment, the debtor formally becomes the judgment debtor, and the creditor may use enforcement mechanisms — such as garnishee orders, enforcement warrants, or bankruptcy proceedings — to recover the amount owed. Being a judgment debtor can affect creditworthiness, as judgments may be recorded in credit reference databases.
Late payment: Payment received after the agreed due date on an invoice or contract. Persistent late payment is one of the most common triggers for referral to a debt recovery firm.
Letter of demand: A formal, written request for payment of an outstanding amount. It is a standard step in commercial collections and normally precedes any escalation to legal recovery.
Limitation period: The window of time within which legal proceedings to recover a debt can generally be commenced. For a simple contract debt this is commonly six years in Australia, though it varies by state and circumstance.
Mercantile agent: A traditional term for a person or firm engaged in debt collection and related commercial recovery work.
Moratorium: A temporary suspension of legal proceedings, enforcement action, or the obligation to make payments. A moratorium may be applied during a hardship arrangement, agreed between the parties, or imposed by law — for example, during voluntary administration, when creditors are generally prevented from taking enforcement action.
Notice of claim: A formal document setting out the details of a claimed debt, issued to the debtor before or as part of court proceedings. It puts the debtor on notice of the amount, its basis, and the action intended if it is not resolved.
Novation: The substitution of a new contract for an existing one, with the agreement of all parties, extinguishing the original obligation and replacing it with a new one — often involving a different party. In a commercial debt context, novation typically arises when a business is sold and the buyer takes over existing contracts, releasing the seller from further liability. Unlike assignment, novation requires the consent of the other contracting party.
Obligation: A legal or contractual duty to pay an amount by a specified date or upon specified conditions. Failing to meet a payment obligation is the basis on which a debt becomes recoverable.
Overdue account: An account where payment has not been received by the agreed due date. The longer an account remains overdue, the more difficult recovery generally becomes.
Particulars of claim: A formal document filed with a court that sets out in detail the facts and legal basis upon which a claimant relies to support their claim for payment. In Australian civil procedure, particulars of claim must identify the nature of the contract, the amount owed, how the debt arose, and any interest claimed. Providing clear and accurate particulars reduces the risk of a claim being struck out or a debtor successfully defending on procedural grounds.
Payment arrangement: An agreement to pay an outstanding amount over time, in instalments, rather than in a single payment. Also called a payment plan.
Payment default: Failure to pay an amount when it falls due under a contract, invoice or arrangement. A payment default may trigger late-payment interest, a default notice, or referral for recovery.
Personal guarantee: A promise, usually given by a company director or owner, to personally meet a company's debt if the company does not. It can extend who a debt may be recovered from.
Phoenix activity: A practice where a company's business and assets are transferred to a new entity to avoid paying the original company's debts, leaving creditors unpaid when the original company collapses. Illegal phoenixing is a serious offence under the Corporations Act 2001 (Cth), and the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) introduced stronger director liability and recovery powers. Creditors who suspect phoenix activity should document their position carefully and seek specialist advice promptly.
PPSA: The Personal Property Securities Act 2009 (Cth) — the federal legislation that governs security interests in personal property (property other than land) in Australia. It established the Personal Property Securities Register (PPSR), on which security interests such as retention of title clauses must be registered to be enforceable against third parties in an insolvency.
PPSR: The Personal Property Securities Register — an Australian government register of security interests in personal property. Registering a security interest on the PPSR can be critical for enforcing a retention of title clause.
Pre-legal notice: A formal notice issued to a debtor as a final step before legal proceedings are commenced. It gives the debtor a last opportunity to resolve the matter voluntarily and is a common requirement before court action can be initiated.
Pre-legal recovery: The stage of recovery that takes place before any court action — structured contact, letters of demand and negotiation. Most accounts resolve at this stage.
Principal: The original amount of a debt, before interest, fees or recovery charges are added. Settlement calculations often distinguish between the principal and any additional amounts that have accrued.
Priority creditor: A creditor whose claim is paid before those of ordinary unsecured creditors in an insolvency administration, by operation of statute. Under the Corporations Act 2001 (Cth) and the Bankruptcy Act 1966 (Cth), priority creditors typically include employees owed wages and entitlements, certain tax debts, and the costs of the administration itself. Being a priority creditor significantly improves the likelihood of recovery in a winding-up or bankruptcy.
Proof of debt: A formal claim lodged by a creditor with a liquidator or trustee in bankruptcy, setting out the amount owed. Filing a proof of debt is a prerequisite for receiving a dividend in a winding-up.
Proof of identity: Documentation sufficient to verify who a debtor or creditor is before taking enforcement or settlement action. In Australian debt collection practice, proof of identity is required before disclosing account details or accepting payment arrangements, to prevent fraud and comply with privacy obligations under the Privacy Act 1988 (Cth). Typical documents include a driver's licence, passport, or Medicare card combined with a secondary document.
Receivable: An amount owed to a business for goods or services already supplied but not yet paid. Receivables are assets on a business's balance sheet until they are collected or written off.
Receivables management: The ongoing process of managing what a business is owed — from issuing invoices and reminders through to following up overdue accounts — with the aim of keeping the receivables ledger healthy.
Recovery costs: The costs of pursuing an overdue debt. These can sometimes be passed on to the debtor, but only where the contract or terms of trade clearly provide for it.
Recovery rate: The percentage of a referred or outstanding debt that is successfully collected. Recovery rates vary with the age of the debt, the quality of documentation, and the debtor's capacity to pay.
Reference number: A unique number assigned to an account in recovery. Quoting it in any contact ensures correspondence and payments are matched to the correct account.
Retention of title: A clause in terms of trade stating that goods remain the supplier's property until they are paid for in full. It can affect what a creditor may recover if a customer does not pay.
Secured creditor: A creditor who holds a security interest over one or more assets of the debtor, giving them the right to take possession of and sell those assets if the debtor defaults. In Australia, security interests in personal property (equipment, stock, receivables) must be registered on the Personal Property Securities Register (PPSR) under the Personal Property Securities Act 2009 (Cth) to be enforceable against third parties. Secured creditors are paid from the proceeds of their secured assets before unsecured creditors receive anything.
Sequestration order: A court order made under section 43 of the Bankruptcy Act 1966 (Cth) that formally declares a person bankrupt and vests their property in a trustee in bankruptcy. A creditor may apply for a sequestration order by first serving a bankruptcy notice on the debtor, who must then commit an act of bankruptcy before the creditor can present a creditor's petition to the Federal Circuit and Family Court of Australia. The sequestration order is the mechanism by which involuntary personal bankruptcy commences in Australia.
Set-off: A debtor's right to reduce the amount owed to a creditor by an amount that the creditor independently owes to the debtor. In Australian law, set-off can be legal (where both debts are liquidated and due) or equitable (where the cross-claim is so closely connected to the main claim that it would be unjust to ignore it). A creditor pursuing recovery must account for any legitimate set-off raised by the debtor or risk the claim being reduced at court.
Settlement: An agreed resolution to a debt, often — but not always — for less than the full amount claimed. A settlement discharges the debt once the agreed amount has been paid, and is recorded as closing the account.
Skip tracing: The process of locating a debtor whose current contact details are unknown. It may involve searching public records, databases and other available information sources.
Small claims court: A simplified court process designed for lower-value civil disputes, with reduced formality and cost. In Australia, this function is largely performed by state and territory tribunals — such as VCAT in Victoria or QCAT in Queensland — rather than the courts themselves.
Statement of claim: The originating court document by which a plaintiff commences civil proceedings in Australian superior courts, setting out the facts and relief sought. In a debt recovery action, the statement of claim will typically plead the contract or agreement, the amount owed, any interest accruing, and the damages claimed. Once filed and served, the defendant has a set period — which varies by jurisdiction and court — to file a defence or the plaintiff may apply for default judgment.
Statute barred: A debt that can no longer be pursued through the courts because the limitation period has expired. The debt still exists in principle, but the creditor has lost the right to sue. Certain actions by the debtor can restart the limitation clock.
Statute of limitations: The overarching concept that legal claims must be commenced within a fixed period set by law, after which the right to sue is extinguished — broadly synonymous with limitation period. In Australia, the relevant legislation is jurisdiction-specific: for example, the Limitation of Actions Act 1974 (Qld), the Limitation of Actions Act 1958 (Vic), and the Limitation Act 1969 (NSW). Australian practitioners typically use the term limitation period rather than statute of limitations, but both refer to the same concept of time-barred claims.
Statutory demand: A formal written demand served on a company under section 459E of the Corporations Act 2001 (Cth), requiring it to pay a debt of at least $4,000 within 21 days. If the company fails to comply and cannot show the debt is genuinely disputed, the creditor may apply to a court to wind the company up on the ground of presumed insolvency. Statutory demands are a powerful and cost-effective tool for commercial creditors because the 21-day non-compliance threshold effectively shifts the burden onto the debtor company.
Subrogation: The legal right by which one party — such as an insurer or guarantor who has paid a debt — steps into the shoes of the creditor and acquires all the creditor's rights against the original debtor. In Australian commercial practice, subrogation most commonly arises when a guarantor pays a debtor's obligations and then seeks reimbursement from the debtor directly. The subrogated party has the same remedies as the original creditor, including the ability to sue or pursue enforcement.
Summary judgment: A judgment entered by a court without a full trial, on the basis that the defendant has no real prospect of defending the claim. In Australian federal and state courts, summary judgment applications are governed by rules in each jurisdiction. For creditors with clear documentary evidence — a signed credit agreement and unpaid invoices — summary judgment is often the fastest way to obtain an enforceable judgment without a contested hearing.
Terms of trade: The agreed rules of doing business with a supplier — payment timeframes, late-payment consequences, dispute handling and more. Clear, signed terms are the foundation of a straightforward recovery.
Trade credit: The practice of supplying goods or services to a customer on account, with payment due within agreed terms rather than at the time of supply. Trade credit is a normal part of commercial dealing, and overdue trade credit accounts are the most common type of debt referred for recovery.
Trade reference: A statement provided by an existing supplier or creditor of a business, confirming the payment history and creditworthiness of that business. Australian creditors routinely request trade references as part of a credit application process before extending trade credit. A positive trade reference from a reputable supplier reduces the risk of extending credit, while a poor or absent reference is a warning sign.
Unfair preference: A payment or transaction made by an insolvent company to a creditor in the six months before the company enters external administration (or four years if the creditor is a related party), giving that creditor more than they would receive in a winding-up. Under the Corporations Act 2001 (Cth), a liquidator can recover such payments and distribute them equally among all creditors. Creditors who receive large payments shortly before a debtor's insolvency should be aware that those funds may later be clawed back.
Unsecured creditor: A creditor who is owed money but holds no security interest over any asset of the debtor. Unsecured creditors are paid last in an insolvency distribution, after secured creditors and priority creditors, and often receive cents in the dollar or nothing at all. Trade creditors — businesses owed money for goods or services — are typically unsecured creditors, which is why early action on overdue accounts matters.
Voluntary administration: A process in which an insolvent company is placed under the control of an administrator, who investigates its affairs and may propose a Deed of Company Arrangement (DOCA) as an alternative to liquidation.
Winding up: The formal process of closing down a company — realising its assets, paying its debts in the order prescribed by law, and distributing any surplus to shareholders before the company is deregistered. Winding up may be voluntary (initiated by shareholders) or compulsory (ordered by a court on application by a creditor or other party). Creditors must file a proof of debt to participate in any distribution.
Writ of execution: A court-issued document that authorises a sheriff or bailiff to enforce a money judgment against a judgment debtor by seizing and selling their property. In most Australian jurisdictions the equivalent document is now called an enforcement warrant, but the term writ of execution remains in common use and in some state rules. Creditors obtain a writ after obtaining judgment and the debtor has not voluntarily paid.
Writ of summons: A document formerly used in Australian courts to commence civil proceedings, requiring the defendant to appear or respond to a claim. Most Australian jurisdictions have modernised their court rules and replaced the writ of summons with a statement of claim, originating application, or claim form, though the term remains in use in some contexts and older credit agreements. Understanding historic terminology helps business owners interpret older court documents.

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