Recovering a bad debt costs money, and the structure of that cost should decide how you pursue it. Collection agencies charge either a commission on what they recover, commonly 10 to 30 per cent and higher on old or small debts, or flat fees for specific actions, with a demand letter often $30 to $150. The legal path runs on its own economics: a statutory demand or letter of demand from a solicitor is cheap, but litigation is not, and issuing court proceedings on a modest debt can cost more than the debt is worth. This guide sets out the fee structures, when each path makes sense, and the maths every business should run before chasing a dollar that costs two to collect. Prevention still beats recovery: start with debt collection strategies before any agency conversation.
Published: July 2026
Before any fee discussion, the highest-return debt recovery is the collection discipline that stops debts going bad, because no agency commission competes with getting paid on time. That means invoicing immediately, clear terms agreed up front, automated reminders before and on the due date, and a human follow-up call within the first week overdue rather than the second month. The debts that end up at an agency are disproportionately the ones that were left to age quietly, and the single biggest determinant of whether a debt is recoverable at all is how old it is when someone first chases it in earnest. Agencies and lawyers are for the debts that survive good process, not a substitute for it. Debtor management strategies and the real cost of 30-day payment terms explain the cash math behind early discipline. An outsourced finance team usually pays for itself first in receivables control, long before any commission rate looks attractive.
Agencies price two ways, often within one engagement.
Commission (no-recovery-no-fee). The agency takes a percentage of what it actually collects, and charges nothing if it recovers nothing. Rates commonly run 10 to 30 per cent, driven by the debt’s age, size and difficulty: a recent, large, uncontested debt sits at the low end, while an old, small or disputed debt runs to the top and beyond, because the effort-to-recovery ratio is worse. The model’s appeal is aligned risk, the agency only wins when you do, and it suits businesses that want recovery off their desk without upfront outlay. Read the agreement for how “recovery” is defined, whether the commission applies to amounts the debtor pays you directly after the agency’s involvement, and any minimum charges.
Flat fees for defined actions. Many agencies and platforms offer fixed-price steps: a demand letter for roughly $30 to $150, a series of letters and calls for a set fee, or a monthly subscription for a volume of accounts. Flat fees suit businesses with a book of similar debts who want a predictable, low-cost first push, and the letter-of-demand step alone resolves a meaningful share of debts, because a formal third-party letter changes a debtor’s calculus at very low cost.
A common, sensible sequence is flat-fee letters first, converting to commission-based recovery only on the debts that do not respond, so cheap actions clear the easy debts and the percentage fee is reserved for the ones that truly need the agency’s effort.
A $12,000 invoice, 75 days overdue, uncontested. Agency commission 22 per cent. Recovery of the full amount nets $9,360. A flat-fee letter series at $180 that recovers the same debt nets $11,820. If the letter fails and commission recovery still succeeds later, you have spent $180 to test the easy path. If you skip letters and hand everything to commission by default, you donate margin on debts that would have paid on a formal nudge.
Where a debt is large, clearly owed and the debtor has capacity to pay but simply will not, the legal path can be the right escalation.
For company debts, a statutory demand under the Corporations Act is a powerful, relatively low-cost tool: it demands payment of an undisputed debt above the statutory minimum within 21 days, and a company’s failure to comply creates a presumption of insolvency that can ground a winding-up application. Preparing one through a solicitor commonly costs a few thousand dollars, and its effect on a solvent debtor who can pay is often immediate, because the consequence of ignoring it is severe. It is not a tool for disputed debts, using it on a truly contested debt can backfire with costs.
For debts generally, a solicitor’s letter of demand (hundreds of dollars) precedes any litigation and often ends the matter. Litigation itself is the expensive escalation: filing in the relevant court, and the legal costs of prosecuting a claim, can run from four to five figures depending on the amount and forum, which is why the small claims and civil tribunals that handle lower-value debts exist and are worth using for modest amounts. The iron rule is proportionality: issuing full court proceedings to recover a $6,000 debt can cost more than $6,000 and recover nothing if the debtor is insolvent, so litigation is reserved for debts large enough, and debtors solvent enough, to justify it.
Three calculations decide the path.
Net recovery. A $10,000 debt recovered at a 20 per cent commission nets $8,000; the same debt requiring $4,000 of legal costs to pursue, with recovery uncertain, nets far less and possibly nothing. Always work the fee against the realistic recovery, not the face value.
Probability, weighted by age and solvency. Recovery probability falls sharply with debt age and collapses if the debtor is insolvent. A debt worth chasing at 30 days may be uneconomic at 12 months, and chasing a debtor with no assets is throwing good money after bad regardless of how clearly the debt is owed. The realistic question is not “is this debt owed” but “will pursuing it net more than it costs”.
The provision you should already hold. A business carrying a doubtful-debt provision, as it should, has already absorbed the P&L hit, which reframes recovery as upside rather than crisis and allows a colder, cheaper decision about which debts to pursue and how hard.
Three identical $8,000 debts:
The same face value is three different products. Ageing reports, not emotion, should assign the path. Use a cash flow forecast when large overdue balances are distorting the runway, and track debtor days against working capital benchmarks.
The practical playbook: keep collection discipline tight so few debts age; use cheap flat-fee demands as the first escalation; move to commission-based agency recovery for debts that resist; reserve the legal path for large, clearly-owed debts against solvent debtors; and write off, deliberately and with the GST adjustment claimed, the debts where pursuit costs more than recovery. Running that discipline, ageing debtors weekly, escalating on a schedule, provisioning properly, and deciding recovery on net-of-fee maths, is exactly the receivables function an embedded finance team operates, and it recovers far more, at far lower cost, than the agency commission that a neglected ledger eventually pays. For pricing the function see cost of bookkeeping in Australia.
How much do debt collection agencies charge?
Either a commission on what they recover, commonly 10 to 30 per cent and higher on old, small or disputed debts, or flat fees for defined actions such as a demand letter at roughly $30 to $150. Many engagements combine the two: cheap letters first, commission recovery on the debts that resist.
Is no-recovery-no-fee a good deal?
It aligns the agency’s interest with yours and removes upfront cost, which suits businesses wanting recovery off their desk. Check how “recovery” is defined in the agreement, including whether commission applies to amounts the debtor pays you directly after the agency is involved, and watch for minimum charges.
When is legal action better than an agency?
When the debt is large, clearly owed and the debtor can pay but will not. A statutory demand against a company, costing a few thousand dollars through a solicitor, is powerful because non-compliance creates a presumption of insolvency. Litigation proper is reserved for debts large enough and debtors solvent enough to justify the cost.
What is a statutory demand?
A formal demand under the Corporations Act for payment of an undisputed company debt above the statutory minimum within 21 days. Failure to comply creates a presumption of insolvency supporting a winding-up application. It is not for disputed debts, where using it can backfire with costs.
Should I litigate a small debt?
Usually not through the general courts, where costs can exceed the debt. For modest amounts, the small claims and civil tribunals are the proportionate forum. The test is always whether pursuit nets more than it costs, weighted by the debtor’s solvency.
How much does debt age matter?
Enormously. Recovery probability falls sharply as a debt ages and collapses if the debtor becomes insolvent, so a debt worth chasing at 30 days may be uneconomic at 12 months. The cheapest recovery is early, disciplined follow-up before a debt ever reaches an agency.
Can I claim back the GST on a written-off debt?
Generally yes: where a debt has been written off as bad or is overdue by the required period, a GST adjustment can be claimed for the GST originally accounted for on the sale. Write-offs should be deliberate and documented, with the adjustment captured.
What is the cheapest way to reduce collection costs overall?
Prevention: immediate invoicing, clear terms, automated reminders and a first-week human follow-up on overdue accounts. The debts that reach agencies and lawyers are disproportionately those left to age, so tight receivables discipline recovers more at lower cost than any commission rate.
Do agency fees include legal action?
Usually not. Commission recovery is commercial collection; court action is a separate legal engagement unless the agreement explicitly bundles stages. Read the scope before assuming litigation is included.
Should I chase a debt the customer disputes on quality grounds?
Pause pure collection pressure until the commercial dispute is assessed. Collection on truly contested invoices can damage the claim and the relationship. Document the file, then choose negotiation, partial settlement or litigation with eyes open.
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We review and check this guide periodically. At the time of writing (July 2026), all information was current. Scale Suite is a registered BAS Agent, not a licensed tax advisor or financial advisor. This content is general information only and does not constitute professional tax, financial, or legal advice. Some details may change over time.
Scale Suite is a Sydney-based provider of outsourced finance and HR services for Australian SMEs. We deliver bookkeeping, financial reporting, payroll processing, fractional CFO support, recruitment, employee onboarding, people and culture support, and fractional HR oversight, all as a fully embedded team that works inside your business.
Employment Hero Gold Partner, CA-qualified, and Xero Certified, we replace fragmented finance and HR processes with one responsive, senior-level function at a fraction of the cost of full-time hires. We serve growing businesses across Sydney, Melbourne, Brisbane, and Perth, with packages starting from $1,500 per month and no lock-in contracts.
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