Your credit control process is only as strong as the documents behind it. Get your credit application and terms and conditions right, and you create a clear legal framework that protects your business – whether a customer pays late, disputes an invoice, or becomes insolvent. Get them wrong, and every step downstream becomes harder and more expensive.
A sound credit control process gives your team clear rules, protects your legal position, and reduces the cost of recovery when things go wrong.
In Part 1 of this series, we covered the fundamentals of a sound credit management system, including account set-up, debtor verification, and the link between good internal procedures and successful recovery.
This instalment focuses on the documentation itself:
When an account goes overdue, the conversation quickly shifts from commercial to legal. At that point, what you can recover (and how quickly) depends heavily on what was documented and signed at the start of the relationship.
A poorly drafted credit application leaves gaps: unclear legal identity, no signed guarantee, no agreed-upon terms. When it comes time to issue a debt collection letter of demand or commence formal recovery action, those gaps become problems. Debtors dispute what was agreed. Guarantors deny their obligation. Claims against insolvent companies go unsecured.
Understanding the debt collection process in Australia starts here. Recovery firms and lawyers work best when your documentation gives them something to work with – a signed agreement, clear terms, registered security. Without that, even the most experienced debt recovery team is working with one hand tied behind its back.
Solid credit documentation services close those gaps before they open. They give your credit control process a defined starting point, a clear contractual structure, and the legal foundation to pursue recovery through every available channel.
The investment is front-loaded – time and cost go in at the beginning – but the return is measured in reduced disputes, faster recovery, and fewer write-offs.
A credit application is more than an information-gathering form. It’s the foundation of the legal relationship between your business and your customer. It should be signed, dated, and retained, and it needs to capture enough detail to allow you to verify identity, assess risk, and act quickly if things go wrong.
At a minimum, your credit application should include:
Your terms and conditions of trade sit at the heart of your credit control process. They define the rules of the commercial relationship, set out what happens when payment is late, and give you the contractual basis to recover costs and enforce security. Here are the clauses that matter most.
If a customer fails to pay and you need to engage a debt recovery firm, who covers those costs? Without a cost recovery clause, the answer is usually you.
This clause does three things:
A well-drafted interest clause allows you to charge reasonable interest on overdue accounts at a defined rate from the due date. This serves two purposes: it compensates you for the cost of carrying the debt, and it creates a financial incentive for debtors to pay on time.
The rate and calculation method should be clearly stated – typically expressed as a percentage per annum, calculated daily. Without this clause, you have no contractual basis to charge interest regardless of how long the debt remains outstanding.
Which state’s law governs your contract, and which courts have jurisdiction over disputes? This matters more than many businesses realise.
If your customer is in a different state, a missing or ambiguous jurisdiction clause can create serious complications when you pursue recovery in court. Nominate the state in which your business operates and where proceedings should be commenced.
For businesses supplying goods on credit, this is one of the most important protections available and one of the most underused.
Under the Personal Property Securities Act 2009 (Cth), you can register a security interest over goods you’ve supplied on credit using the Personal Property Securities Register (PPSR).
A retention of title clause in your terms and conditions states that ownership of goods remains with you until full payment is received. But a clause in your contract alone isn’t enough. To be enforceable against third parties (including a liquidator), you need to register your interest on the PPSR.
You must generally register within 20 business days of the agreement, or more than six months before your customer’s insolvency. For a purchase money security interest (PMSI) over non-inventory property, registration must occur within 15 business days of the customer taking possession. Most PPSR registrations are valid for seven years unless a shorter duration is specified.
A Deed of Guarantee and Indemnity creates personal liability for the individual or individuals standing behind the company. If the company can’t pay through insolvency, liquidation, or otherwise, the guarantee gives you a direct claim against the guarantor personally.
This is particularly important when extending credit to smaller companies with limited assets. Without a guarantee, your only recovery avenue is through the company itself. With one, you can pursue the director or other principal individually.
Guarantees must be signed separately from the credit application itself to be enforceable, and the guarantor should be given a genuine opportunity to seek independent legal advice before signing.
Commercial relationships evolve. Prices change, trading conditions change, and your terms may need updating. A variation clause allows you to amend your terms and conditions on reasonable notice without having to execute a new agreement each time. It should specify how notice is given (email, website, written notification) and what the customer’s options are if they don’t accept the changes.
Your entire credit assessment is based on the information provided in the credit application. If that information is false or misleading, your decision to extend credit may have been made on a false premise.
A clause requiring the applicant to warrant the accuracy of the information provided – and acknowledging that credit has been extended in reliance on it – establishes a clear basis for action if you later discover material misrepresentation.
If your customer is trading as a trustee of a trust, the legal complexity increases. In a trust structure, the trustee holds assets on behalf of beneficiaries, and recovery against the trust’s assets requires specific legal mechanisms.
Your terms and conditions should address this directly, requiring the trustee to sign in their personal capacity as well as in their capacity as trustee. This gives you a broader recovery base if the trust structure complicates enforcement.
Your terms should also address the circumstances in which your own liability to the customer is limited – for example, to the value of the goods or services supplied, or by excluding liability for indirect or consequential loss.
These clauses are common and generally enforceable in B2B contracts, but they must be clearly drafted and proportionate to pass muster under consumer protection law.
As of 9 November 2023, Australia’s unfair contract terms regime was significantly strengthened under the Australian Consumer Law (ACL). Unfair terms in standard form contracts are now prohibited outright – not merely voidable – and substantial penalties apply.
The expanded regime covers contracts where at least one party employs fewer than 100 full-time equivalent employees or has an annual turnover below $10 million. Penalties for breaches can reach the greater of $50 million, 30% of adjusted turnover, or three times the benefit derived from the contravening conduct.
In practical terms, for businesses supplying goods or services on credit, this means avoiding terms that:
This doesn’t mean your terms can’t protect your interests – they absolutely should. It means those protections need to be proportionate, transparent, and balanced. If you haven’t reviewed your standard form contracts since November 2023, that review is overdue. Seek legal advice to ensure your terms comply with the current regime.
If you’re unsure whether your current credit documentation gives you the protection you need, our team can help.
AMPAC works with businesses across Australia to review and improve the quality of credit documentation as part of a broader commercial debt recovery strategy – because recovery becomes significantly easier when the groundwork has been done properly at the start.
The information in this article is general in nature and does not constitute legal advice. Seek independent legal advice for guidance specific to your business and circumstances.
At minimum:
Each clause serves a specific purpose in your credit control process, and its absence creates a gap that can be exploited.
A PPSR security interest is a legal interest you hold over personal property (such as goods you’ve supplied on credit) that has been registered on the Personal Property Securities Register.
Registering your interest on the PPSR protects you if your customer defaults or becomes insolvent – it elevates your claim from unsecured to secured, giving you priority over unsecured creditors in a liquidation. Without registration, a retention of title clause in your contract may offer little real protection.
Because a company is a separate legal entity, your claim against it only goes as far as the company’s assets. If the company has no assets, you have no recovery. A Deed of Guarantee and Indemnity creates a personal liability for the director or other principal, giving you an additional avenue for recovery. For businesses extending meaningful credit to smaller or thinly capitalised companies, a properly executed guarantee is an important safeguard.
A credit application should capture the full legal identity and structure of the entity (company, partnership, sole trader, or trust), ACN or ABN, registered address, key principals and their contact details (email and mobile), trade references, the requested credit limit, and a signed acknowledgement that the applicant agrees to be bound by your terms and conditions of trade. It should also require the applicant to warrant the accuracy of the information provided.
Mark can be contacted by phone on 0409 749 709 or by email at m.logue@4ampac.com.au
Do you have debt that needs recovering? Are you unsure on where to start? Contact AMPAC Debt Recovery for solutions today and speak to one of our qualified consultants to get you started.
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