The work is done, your team has moved on, and the invoice has been sent. Then the client comes back saying the price wasn’t what they agreed on, or that the scope was different from what they expected. The bottom line: they’re not paying.
But you have a text conversation from when the job was booked, and you both agreed on the work over the phone. Surely that’s enough?
Under Australian law, it might be, but proving it is another matter entirely. And since changes to contract law took effect in November 2023, courts are scrutinising business agreements more closely than ever before. If your business is still relying on verbal agreements, deposits, or a client’s word as a substitute for a properly signed contract, the law is no longer on your side the way you might think.
What Changed in November 2023?
The Treasury Laws Amendment Act 2022 came into full effect on 9 November 2023. Before these changes, if a court found a contract term to be unfair, it could declare that term void and unenforceable, but there were no financial penalties. In many cases, there was little real motivation for businesses to clean up their contracts.
That changed in November 2023. Now, businesses can be fined for simply including unfair terms in a standard form contract, even if those terms are never actually enforced. For companies, maximum penalties can reach $50 million or 30% of adjusted annual turnover, whichever is greater. Individuals face penalties of up to $2.5 million.
Equally significant is who these changes now apply to. From November 2023, any business with fewer than 100 employees or an annual turnover under $10 million is covered, regardless of the contract value. That brings a much larger slice of Australian business dealings under the spotlight.
What Does “Unfair” Actually Mean?
Under the Australian Consumer Law, a contract term is considered unfair if it creates a significant imbalance in the parties’ rights and obligations, is not reasonably necessary to protect the legitimate interests of the business relying on it, and would cause detriment to the other party if applied.
In practice, courts have looked unfavourably at terms that allow a business to change prices or services without notice or limit liability in one-sided ways that the client has no real ability to negotiate around.
The important point for small and medium businesses is that vague, broad, or one-sided terms in your standard agreements are now a legal liability, not just bad form. If you issue the same contract template to all your clients, those terms are now subject to scrutiny, and the courts have real power to act on what they find.
The Verbal Agreement Problem
Verbal agreements can be legally binding in Australia. The law doesn’t specifically require a contract to be written to be enforceable. But what it does require is that the essential elements of a contract are present: a clear offer, acceptance, something of value exchanged, and an intention by both parties to be legally bound.
The problem is not whether a verbal agreement can be enforced. The problem is proving it.
When a client disputes what was agreed, the burden of proof falls on the party claiming the contract existed and on the specific terms they say were agreed. Courts look at emails, texts, invoices, subsequent conduct, and any other evidence that sheds light on what was discussed and accepted. If the only record of an agreement is a phone call, and the person on the other end of the line tells a different story, you’re in difficult territory.
In a debt recovery context, this makes a big difference. Before a debt collector or court can pursue an unpaid amount, there needs to be clear evidence of what was agreed. Without that, the debt itself is harder to establish, let alone recover.
Why a Deposit Isn’t Enough on Its Own
Many business owners take a deposit and consider the deal locked in. A deposit does provide some evidence that an agreement was reached, but it doesn’t define the terms of that agreement.
A deposit shows that money changed hands. It doesn’t show:
- What the total price was
- What the full scope of work covered
- When the balance was due
- What would happen if the client failed to pay.
Those are the things a court or a debt collector needs in order to act. Taking a deposit is a sensible part of doing business, but it should sit alongside a signed agreement, not replace one.
What Good Practice Looks Like Now
The businesses best protected are those with clean, signed agreements in place before work begins. A few essentials that should be part of every business’s internal process:
- Get a signed agreement before starting work: This doesn’t need to be a lengthy legal document. A clear service agreement or terms and conditions for the client to sign is far better than nothing. Email confirmation where a client explicitly accepts your terms in writing can also carry weight, but a signature is cleaner and harder to dispute.
- Define the scope, price, and payment terms explicitly: Vague descriptions invite disputes. “Landscaping work as discussed” is not a scope. The more clearly your agreement sets out what is being provided, at what price, and when payment is due, the less room there is for a client to rewrite the story later.
- Include a clear non-payment clause: What happens if a client doesn’t pay on time? Will interest accrue? Will collection costs be passed on? If your agreement says so, those terms can be enforced. If it doesn’t, you may be limited to the original invoice amount, with no recovery of costs incurred in chasing the debt.
- Follow up verbal conversations in writing: If scope changes, price is discussed, or anything is agreed over the phone, send a brief email confirming what was discussed. That email can be the difference between a recoverable debt and an unresolvable dispute.
- Review your standard templates: If you use the same contract for all clients, it is worth having those terms reviewed against the current rules. What was acceptable a few years ago may now pose a challenge for your business.
Get It Right Before the Work Starts
The legal environment around contracts has tightened, but some businesses are still running on handshakes and goodwill. Get a signed agreement before you start work, no exceptions. It’s a small habit that closes a very large gap in your protection.
If a debt has already slipped through without proper documentation in place, don’t write it off. Dynamic Commercial Collections works with businesses across Australia to recover unpaid accounts, and we know how to work with what you have. Get in touch with our team for an obligation-free consultation.