Understanding Debt Recovery Costs in Australia

The cost of doing nothing

Before comparing recovery options, consider the baseline: writing the debt off. The direct cost is the face value of the debt. But there are hidden costs too: the time already spent on collection activity, the GST you may have remitted to the ATO on a sale that was never paid, and the indirect cost of extending credit to a customer who was a bad risk.

Our Recovery ROI Calculator compares the net benefit of recovering a debt versus writing it off, accounting for the cost of recovery. For most debts above $2,000, recovery is almost always more financially rational than write-off — even at modest recovery rates.

Option 1 — DIY internal collection

Internal collection is the natural first step for most businesses. The direct cost is low — automated reminders and a letter of demand cost very little in out-of-pocket terms. However, the true cost includes:

• Staff time: Following up overdue accounts takes time. If an accounts receivable staff member spends 2 hours on a $5,000 debt, the true cost (at full employment cost) may be $80–$150 — before the outcome is known.
• Opportunity cost: Time spent chasing is time not spent on billing, relationship-building, or other productive work.
• The ageing of the debt: Every week of internal follow-up that does not produce payment is a week the debt ages — and the probability of collection decreases as the debt ages. See our Debt Age Impact Calculator.

DIY collection is effective for debts that are 0–45 days overdue and where the debtor is responsive. Beyond that, the return on further internal effort typically diminishes rapidly.

Option 2 — Commission-only debt recovery agency

A commission-only agency (such as Merion) charges a percentage of what is actually recovered, with no upfront fees. The key features:

• Upfront cost: Nil.
• Cost if nothing is recovered: Nil.
• Commission rate (indicative): Approximately 15%–30% of the recovered amount, depending on debt age and complexity. Rates for fresher debts are lower; older or more complex debts attract higher rates to reflect the increased effort and risk.
• Net outcome: You keep 70%–85% of what is recovered (before GST on the commission). Use our Net Recovery Estimator to calculate your estimated net proceeds.

Commission-only recovery is the most cost-effective option for most commercial debts. There is no financial risk — only the risk that nothing is recovered, in which case you are no worse off than if you had done nothing. For debts above $1,000–$2,000, there is almost always a sound economic case for referral.

Merion uses this model exclusively. These commission ranges are illustrative — your actual rate is confirmed in writing before work begins.

Option 3 — Solicitor letters and legal action

Engaging a solicitor to write a letter of demand or commence court proceedings is appropriate in some cases — particularly where the debt is disputed, involves complex legal issues, or where the debtor is a high-value target worth the investment.

Indicative costs (not guaranteed — legal fees vary widely by firm, state, and complexity):

• Solicitor letter of demand: $200–$600 (fixed fee or time-based), payable regardless of outcome.
• Filing a court claim (NSW Local Court / Magistrates Court): Approximately $100–$290 for claims up to $10,000; $290–$600 for claims up to $100,000. These are filing fees only — not legal fees.
• Solicitor to prepare and file claim: $500–$2,000+ depending on complexity, state, and the law firm engaged.
• Enforcement (garnishee, warrant): Additional fees apply for each enforcement step taken after judgment.

These figures are illustrative ranges based on publicly available information as at the date of publication. Court fees change and vary by state — always verify current fee schedules at the relevant court's website before filing.

For debts under $10,000–$15,000, solicitor costs can represent a significant proportion of the claim amount, making commission-only recovery a more cost-effective first step.

Option 4 — Combined approach

The most effective approach for many businesses is to combine options: use a commission-only agency first (lower risk, no upfront cost), and escalate to legal action only if the debtor is unresponsive and the amount justifies the legal cost. This is the approach Merion recommends — and in many cases, commission-only collection resolves the matter without any need for court involvement.

Comparing the options

• DIY: Low cost, effective for fresh debts, diminishing returns after 45–60 days.
• Commission-only agency: No upfront cost, no cost if unsuccessful, most cost-effective for most commercial debts.
• Solicitor: Higher cost (regardless of outcome), appropriate for disputes, complex matters, or high-value debts.
• Court action: Can recover costs from the debtor if successful, but requires investment upfront and enforcement is a separate step.

All costs and fee ranges in this guide are indicative only — not quotes or guarantees. Court filing fees and legal costs vary by state, court, and complexity and are subject to change. Merion's commission rates are illustrative and depend on your specific agreement. Verify current court fees at the relevant court's website before filing. This guide does not constitute legal or financial advice.