5 Legal Issues in Construction Debt Collection

Are you a construction business in Australia, but is having trouble collecting debts from clients and dealing with construction debt collection?

This can be a common struggle within the construction and building industry and can cause a lot of stress among business owners.

Construction debt collection can be a difficult thing, especially if you are not used to the process and elements.

It can also be quite complex legally, so you must understand it so that you can effectively recover your debts.

Not only this but not following guidelines and the rules of debt collection can result in legal issues with clients and potential penalties issued by the court.

But how am I to know the legal issues in debt collection, especially if I am new to this sort of thing? We’re here to help!

In this article our construction debt collectors will discuss some of the key legal issues faced by construction businesses in the field of debt collection and how you can get around them and recover your debts!

Construction Debt Collection - Defective Work

The first legal issue that is often faced by construction businesses when they are collecting debts is managing the potential accusations of defective building work.

Defective work is a serious deal within the construction community!

Not only will accusations of defective or low-quality work damage your reputation as a business, but they will likely result in little to no payment for your work if not resolved.

This means that if a client states that the work you performed on their property is defective, you will not be legally entitled to receive payment until the issue is resolved.

Claims of defective work can sometimes function as a “get out of jail free card” for clients in the way that if they can’t or do not want to pay for your work, they may claim it to be defective.

So how can I deal with this?

You should first visit the site to check if it is indeed defective and, if it is, resolve the issue with no extra charge to the client.

If you find it to be untrue, you should consult your local building and constructions commission, or a lawyer and gather your evidence!

Construction Debt Collection - Bankruptcy / Insolvency

Another legal issue that is often faced by construction businesses when they are collecting debts is clients declaring bankruptcy / Insolvency.

Clients can, sometimes, agree to your contract when they’re either not financially stable or they suddenly have something big (expensive) come up only after they have had their work done.

In this case, they may declare bankruptcy / Insolvency, which can be quite a dire situation.

The client will obviously face their own issues because of this, but they won’t be the only ones!

You see, declaring bankruptcy / Insolvency means that your client will no longer have a personal responsibility to make their debt payments.

Instead they will have someone that supervises their finances and makes payments as appropriate and as the rules of bankruptcy apply.

This may mean that you are a low priority on the repayment scale and may not receive payment!

There is nothing you can do once someone has declared bankruptcy / Insolvency, but you can take steps to help prevent it.

For example, if you see that your client is in a bad financial state, offer negotiation of the plan so that they can make payments that better suit them now!

Construction Debt Collection - Contracting

Another legal issue that is often faced by construction businesses when they are collecting debts is dealing with and managing their contracts.

Contracts are a big part of any business.

They are the things that prevent clients from simply not making payments and make them personally liable for the terms of your agreement.

Some people have issues with their contracts, however, especially in the fields that provide a service.

It is good to be trusting, but caution is your friend when there are large amounts of money involved.

It is important that you have all of your clients sign a contract, even those that you know outside of the service.

This way, you avoid having issues with clients that deny terms or even deny that work took place or there was an agreement of payment for such.

Collection Laws in the Construction Industry

Another legal issue that is often faced by construction businesses when they are legally collecting debts is dealing with collection laws.

As with pretty much anything else involving money, you are not permitted to act or behave however you please when you are managing your debts with clients.

There are certain laws, rules, and guidelines that you will be required to follow to protect the safety and privacy of the client.

For example, you cannot reveal information about a debt to anyone but a client in nearly all circumstances as the privacy of your debtor will be jeopardised.

These rules sometimes create issues within the field of debt collection with all kinds of creditors!

In order to avoid facing legal penalties, reputational damage, and other such issues that can arise from violating debt collection laws, there are several things that you can do.

The first is to ensure that you know the laws and are careful to follow them.

This should occur regardless of your choice of the debt collection process. You can also consult a professional for guidance and assistance!

Limitation Dates for Debt Recovery

Another common legal issue that is faced by construction businesses when they are collecting debts is staying within the statute of limitations.

We are all guilty of putting things off to some extent.

Whether we left our work until the night before it's due in school or put off that household chore that we hate, procrastination is a bad habit for many.

However, when dealing with an unpaid debt, there is only so long that you have to collect it.

Depending on where you live or where your business is located the time will vary but pretty much everywhere will have a time period that a debt must be acknowledged within before you can no longer look to collect it.

In most states in Australia (except NT), this time is 6 years.

The only way to avoid the statute of limitations from getting you is to stop putting it off and chase up that debt!

Hire a Debt Collector

If you still, after all of your efforts, find yourself having legal or other issues with your debts, you should start to consider hiring a debt collector.

A debt collector is a professional in the field and will have the tools and experiences needed to finally collect that debt!

They can also undergo more matter-specific tasks, such as locating those who have fled their area to escape their debts with skip tracing.

Hire a debt collector today, they can be a great help!  Submit your debt online today.

Construction Debt Collection FAQ

This FAQ section is to provide some answers to the most commonly asked questions on construction debt collection.

What are some common legal issues that construction businesses face when collecting debts?

Construction businesses can face legal issues such as accusations of defective work, clients declaring bankruptcy/insolvency, issues with contracts, collection laws, and staying within the statute of limitations.

How can I deal with accusations of defective work from clients?

If a client accuses you of defective work, the first step is to visit the site to check if the claim is true.

If it is, you should resolve the issue with no extra charge to the client. If it is untrue, you should consult your local building and constructions commission or a lawyer and gather your evidence.

What can I do if a client declares bankruptcy or insolvency and can’t make debt payments?

Once a client declares bankruptcy or insolvency, they may no longer have a personal responsibility to make their debt payments.

To prevent this situation, it's best to offer negotiation of the payment plan so that they can make payments that better suit them now.

What are some guidelines that construction businesses must follow when collecting debts?

There are certain laws, rules, and guidelines that construction businesses must follow when collecting debts to protect the safety and privacy of the client.

For example, you cannot reveal information about a debt to anyone but a client in nearly all circumstances.

What is the limitation period for debt recovery in Australia?

The time period for debt recovery can vary depending on where your business is located. In most states in Australia (except NT), this time is six years.

It's important to stay within the statute of limitations to avoid losing the opportunity to collect unpaid debts.