What Australian businesses should know about debt collection

In an ideal world, all customers would settle their invoices within the agreed payment terms, but unfortunately, despite payment times improving in Australia, very few businesses ever pay on time resulting in frustration and anxiety as it impacts a business’s day to day cash flow position. No matter what industry you operate in, every business owner accepts that unpaid bills are part of running a business, but they might be aware of specific strategies they can deploy to help minimise or even eliminate such risks.

When invoices are not paid it directly impacts your cash flow and your bottom line, leaving you frustrated and annoyed, as it adds another task to your day that you shouldn’t have to address if customers paid on time for the products or services you provided. Credit control is about minimalising the risk of overdue invoices and bad debt write-off. Carrying out this function is challenging and time-consuming and is one of the reasons why savvy businesses outsource such functions externally so they can focus on running and growing their business.

If this all sounds too familiar and trying to navigate how you can reduce slow payers and bad debt due to exhausting all possible methods yourself, below we have outlined proven strategies to help you improve cash flow by minimising slow-paying customers and bad debt.

Credit Control

Your internal process is the first step in trying to get outstanding invoices paid. Whether you do it yourself or employ someone to handle your accounts, it involves constantly chasing payment with reminder emails or calling your customers for an update on when your invoice will be paid. If they are experiencing financial problems or have no intention of paying, they will generally ignore emails, calls, and generally evade you however they can.

As outlined, credit control is challenging and time-consuming. Sometimes it is successful and payment is received. But when a debt remains outstanding, you have to make a decision based on what is best for your business. If the amount owing is relatively small and don’t like your chances of recovery, it could be more cost-effective to write the debt off rather than investing more time (and money) to collect, however, you can always speak to a debt collection agency and get a free appraisal to understand your options available and chances of recovery.

Taking Further Action

Debt collection in Australia is governed by Australian Consumer Law (ACL) and the ASIC Act covering debt collection conduct and is regulated by the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC).  If you are going to pursue debt collection by yourself, you need to be aware of the code and comply with it.

The key points of the code are:

• You must identify yourself when contacting a debtor
• You can make reasonable enquiries if the debtor states they are unable to pay
• You must not disclose any of the debtor’s information to third parties
• Enquiries and approaches must be made within reasonable hours (e.g. 8 am to 8 pm)
• Do not contact the debtor by any method they have advised not to be used
• There should be no attempts at intimidation or humiliation
• Face-to-face visits should be a last resort
• Do not trespass
• Evidence of the debt should be presented if requested
• Be professional about the consequences of non-payment or the legal status of the debt.

The code is designed to be a practical and realistic framework for all parties and that creditors and debtors treat each other fairly and be flexible to reach a satisfactory resolution. From the business’s perspective, staying within the code keeps you on solid legal foundation and it doesn’t expose your collection activities.

In following the guidelines, you still have the right to:

• Pursue legal action to recover a debt
• Use legal repossession avenues
• Use legal enforcement of legitimate security interests
• And, undertake any of the necessary processes to pursue these actions.

If you fail to secure payment, you should take legal advice and pursue the debt through the courts.

Debt Collection Agency

If you choose to chase the debt yourself and fail to recover payment, or you wish to forego the process, you can hand the debt over to a specialist debt collection agency. A professional debt collection company are specialists in recovering outstanding debts. They will take over the whole process of debt recovery, leaving you to focus on other aspects of your business. Whether you engage them after a set period of time as part of your business process or engage them after you have already tried to collect the debt yourself, reputable and experienced debt collectors are able to integrate into your existing processes in order to get you paid faster.

One of the most common barriers to outsourcing your accounts receivable is the perception of jeopardising business relationships. In fact, this is actually one of the reasons why businesses should outsource such functions, as professional debt collectors remove you from the conversation with customers and gives the perception you’re serious about trading terms and operate in a professional manner. With this in mind, choosing your debt collection agency is important, as if the agency fails to adhere to industry collection guidelines and practices could impact your customer’s relationships and be exposed to legal proceedings against you.

There are many debt collection agencies to choose from, so it’s important to carry out your own due diligence to make sure you have the right partner who is professional, ethical, and one that aligns with your business and expectations.

Here we have outlined a few things to understand prior to choosing a debt collection agency to help improve your cash flow and minimise bad debt.

• Do a background check on the agency. How long have they been in business? Are they registered and licensed?
• Read reviews of the agency online
• Do they offer a “no recovery, no fee service”
• Will you be allocated a dedicated account manager?
• Are you able to track the progress of your case online?

If you’re having trouble with slow payers or bad debt, feel free to get in touch with us for a no-obligation FREE appraisal of your debt. No catches, no tricks. Simply fill out the form below and one of our debt recovery specialists will call you back within 24 hours.