You're owed $8,000. Invoice is 60 days overdue. Debtor isn't responding.
Question: What's the cheapest way to recover this debt?
Most Australian businesses guess. They pick a recovery method based on what sounds right, not what the numbers say.
DIY recovery costs nothing upfront, but takes weeks of your time. Time that could be invested elsewhere in the business for a higher return. Lawyers charge triple-digit hourly rates and minimum retainers. Debt collectors want 25-35%, but only if they succeed.
The challenge: Comparing apples to oranges.
Each method has different costs, different success rates, different timeframes. What looks cheap upfront might be expensive when you factor in recovery probability and opportunity cost.
The solution: The 5-Method Cost Analysis - a structured framework for comparing true recovery costs across all available options.
This isn't just fee comparison. This is total cost of recovery including your time, legal fees, success probability, and what you actually net after everyone takes their share.
Why Most Businesses Choose Wrong
The common mistakes:
Mistake 1: Comparing sticker prices only
Lawyer charges $3,500. Debt collector charges "35%". DIY costs "$0".
On an $8,000 debt, that looks like: $3,500 vs $2,800 vs $0.
Except DIY takes 40 hours of your time ($2,000 if your time is worth $50/hour). Lawyer has 85% success rate. Debt collector has 60%. DIY averages less than 40%.
Suddenly the math changes completely.
Mistake 2: Ignoring opportunity cost
"I'll chase this myself. Saves money."
You spend 6 weeks managing reminders, legal threats, credit reporting. Six weeks you could have spent servicing paying clients or winning new business.
That's not free. That's expensive.
Mistake 3: Optimistic recovery assumptions
"The lawyer will definitely get this back."
Maybe. Or maybe the debtor has no assets, files for bankruptcy, or simply ignores the judgment. Even winning in court doesn't guarantee collection.
40-60% of court judgments never get fully paid. Factor that into your cost analysis.
What works: The 5-Method Cost Analysis - comparing true cost per dollar recovered across all recovery options with realistic success rates.
The 5 Recovery Methods
Method 1: DIY Recovery
What you do:
- Send escalating reminders yourself
- File small claims yourself
- Handle all communication and follow-up
Upfront cost: $0-500
Your time required: 20-60 hours
Success rate: 30-50% (varies widely by debt age and your persistence)
Best for: Small debts under $2,000, when you have time, when relationship preservation matters
Hidden costs:
- Your hourly rate × time spent
- Opportunity cost (clients not serviced, sales not closed)
- Stress and mental overhead
- Learning curve for legal processes
Method 2: FINAL NOTICE
What happens:
- Professional escalation, resolution and recovery
- Credit reporting if debt qualifies
- Letters of demand
- Legal action coordination if you authorise
- Debt collection referral if you authorise
- A done for you bespoke service
Upfront cost: Flat-rate fee (see pricing)
Your total time required: 1 hour (share invoice and background + consultation if legal action needed)
Success rate: 60-70% (most pay before legal action)
Best for: Debts over $5,000 when you want professional handling and when time matters
What you get:
- All notices and communication
- Credit bureau reporting
- Debtor response handling
- Regular progress updates
- Legal pathway consultation and evidence pack
What requires your authority: Legal action and additional legal costs if pursuing judgment.
Method 3: Law Firm Direct
What happens:
- Letter of demand on law firm letterhead
- Court filing if no response
- Judgment obtained
- Enforcement if needed
Upfront cost: $2,000-8,000 depending on debt size and complexity
Your time required: 5-10 hours (briefing lawyer, providing documents, court attendance)
Success rate: 70-85% for obtaining judgment, 40-60% for actual collection
Best for: Debts over $20,000, complex disputes, when you need legal muscle immediately
Fee structures:
- Fixed fee (common for straightforward matters)
- Hourly rate ($250-500/hour)
- Contingency (rare in Australia, some firms offer 30-40% + costs)
Reality Check
Winning judgment ≠ getting paid. Many judgments remain uncollected because debtor has no assets or income to garnish.
Method 4: Contingency Debt Collector
What happens:
- Debt collector takes over all communication
- Phone calls, letters, negotiation
- Payment plans arranged
- They take percentage only if successful
Upfront cost: $0
Commission: 25-35% of amount recovered
Your time required: 1-2 hours (initial referral)
Success rate: 50-70% depending on debt age
Best for: High-volume low-value debts, when you want zero upfront risk, debts under $10,000
Trade-offs:
- Lower recovery amount (you get 65-75% of debt after commission)
- Less control over process
- Debtor may resent aggressive approach
Method 5: Write-Off
What happens:
- You stop pursuing the debt
- Claim tax deduction for bad debt
- Move on
Upfront cost: $0
Recovery: $0
Tax benefit: Marginal tax rate × debt amount
Your time required: 30 minutes (accounting entry)
Best for: Debts under $500, insolvent debtors, disputed amounts
When to write off:
- Debt is less than cost of recovery
- Debtor is bankrupt/insolvent
- Cost of pursuing exceeds probable recovery
- Relationship damage outweighs debt value
Tax treatment:
On $1,000 debt at 30% marginal rate: $300 tax saving, $700 actual loss.
Better than spending $800 chasing $1,000 you'll never collect.
The 5-Method Cost Analysis Framework
How to compare true costs:
Step 1: Calculate Gross Cost
DIY: Filing fees + (your hourly rate × hours spent)
Example: $200 filing + ($75/hour × 30 hours) = $2,450
FINAL NOTICE: Service fees + legal costs if authorised
Example: Flat-rate fee (starts at $199) + $0 legal (settled in 30 days) = $199
Lawyer: Legal fees + court costs + enforcement costs
Example: $3,500 legal + $400 court + $500 enforcement = $4,400
Debt Collector: Commission % × recovered amount
Example: 30% × $8,000 = $2,400 (but only paid if successful)
Write-Off: Debt amount - tax benefit
Example: $8,000 - ($8,000 × 30%) = $5,600 actual loss
Step 2: Adjust for Success Probability
Gross cost means nothing if recovery fails.
Expected cost = Gross cost ÷ Success rate
Example comparisons on $8,000 debt:
DIY: $2,450 cost ÷ 40% success = $6,125 expected cost per successful recovery
FINAL NOTICE: $199 cost ÷ 70% success = $284 expected cost per successful recovery
Lawyer: $4,400 cost ÷ 75% success × 50% collection = $11,733 expected cost per successful collection
Debt Collector: $2,400 commission ÷ 65% success = $3,692 expected cost per successful recovery
Step 3: Calculate Net Recovery
What you actually receive after all costs.
Net recovery = (Debt amount × Success rate) - Gross cost
Example on $8,000 debt:
DIY: ($8,000 × 40%) - $2,450 = $750 net
FINAL NOTICE: ($8,000 × 70%) - $199 = $5,401 net
Lawyer: ($8,000 × 75% × 50%) - $4,400 = -$1,400 net (loss)
Debt Collector: ($8,000 × 65%) - $2,400 = $2,800 net
Write-Off: $0 - $5,600 = -$5,600 net loss + tax benefit
Step 4: Factor Time Value
Your time has value. Include it.
If your billable rate is $100/hour:
- DIY: 30 hours = $3,000 opportunity cost
- FINAL NOTICE: 2 hours = $200 opportunity cost
- Lawyer: 8 hours = $800 opportunity cost
- Debt Collector: 1 hour = $100 opportunity cost
- Write-Off: 0.5 hours = $50 opportunity cost
True Net Recovery
True net recovery = Net recovery - Time value
Suddenly DIY ($750 net - $3,000 time = -$2,250) looks worse than FINAL NOTICE ($5,100 net - $200 time = $4,900).
Complete Cost Comparison Table
| Method | Upfront Cost | Success Rate | Time | Net ($8K) | Best For |
|---|---|---|---|---|---|
| DIY | $0-500 | 30-50% | 20-60 hrs | $750-2K | Under $2K |
| FINAL NOTICE | Flat-rate fee (starts at $199) | 65-75% | 1 hr | $4.5-5.5K | $5K+ |
| Lawyer | $2-8K | 70-85% (judgment) 40-60% (collection) |
5-10 hrs | -$1K to $2K | $20K+ |
| Debt Collector | $0 (25-35% fee) | 50-70% | 1-2 hrs | $2.5-4K | High volume |
| Write-Off | $0 | 0% | 30 min | -$5.6K + tax | Under $500 |
Key Insights
DIY is expensive when you include time: $0 upfront becomes $2,450-5,000 true cost
FINAL NOTICE has affordable net recovery on $5K+ debts: Professional handling without lawyer fees
Lawyers are worth it ONLY on debts over $20K: Otherwise legal fees exceed probable recovery
Debt collectors work for volume: Better for 10 × $2K debts than 1 × $20K debt
Write-off is correct for small/uncollectable debts: Better to lose $500 cleanly than spend $800 chasing it
Frequently Asked Questions
What's the average cost to recover a debt in Australia?
Depends entirely on method and debt size:
- DIY: $0-500 cash + 20-60 hours time
- FINAL NOTICE: Flat-rate fee (starts at $199) + 1 hour
- Lawyer: $2,000-8,000 + 5-10 hours
- Debt collector: 25-35% of recovered amount + 1-2 hours
- Write-off: $0 + tax benefit
Is it worth hiring a lawyer to recover a debt?
Only if the debt exceeds $10,000-20,000.
Legal fees typically run $2,000-8,000. On a $5,000 debt, you'll spend more than you recover.
Better approach:
- Start with FINAL NOTICE (professional escalation at lower cost)
- Engage lawyer only if FINAL NOTICE stages don't resolve
- This way you only pay legal fees if absolutely necessary
What percentage do debt collectors take in Australia?
Standard commission rates:
- 25-30%: Larger debts (over $50,000)
- 30-35%: Standard range for most debts
- 35-40%: Difficult/old debts, small amounts
Hidden Consideration
Success rate matters more than commission rate. Collector with 65% success at 30% commission nets you more than collector with 50% success at 25% commission.
The Bottom Line
Debt recovery isn't about finding the cheapest method. It's about maximizing net recovery.
The 5-Method Cost Analysis Shows
DIY is expensive once you include time: $0 upfront becomes $2,000-5,000 true cost
FINAL NOTICE has best cost/recovery ratio for $5K+ debts: Professional handling without legal fees
Lawyers are only justified on debts over $20K: Legal fees eat smaller debts
Debt collectors work for volume: 100 × $1,000 debts, not 1 × $100,000 debt
Write-off is smart for small/unrecoverable debts: Better to lose $500 cleanly than spend $800 chasing it
True cost = Cash cost + Time cost ÷ Success probability
Run that formula before choosing your recovery method.
When you run the numbers and consider the cost of your time, Australian businesses discover FINAL NOTICE delivers the highest net recovery on debts over $5,000. With a low flat-rate fee starting at $199/mo, it's a low-risk way to have a professional third-party manage your collections.