Are you considering working with a debt collection agencies to recover those debts from bad payers, but don’t know what to expect and how it works?
If so, you may be feeling a little stressed about the prospect of paying someone to collect a debt, especially if you are unsure about what you will see with a debt collector.
Debt collection agencies are companies that specialise in recovering debts on behalf of creditors.
Debt collection agencies have to follow strict legal criteria to guarantee that debts and the debtors are handled properly and creditors may collect their debts in a legitimate and ethical way.
Although all debt collectors are different and function differently, there are some essentials that all should be doing when collecting a debt.
Without these key features of a debt collector, chances are that they are not doing what they are supposed to and will be unsuccessful or unprofessional, or even act illegally!
This is why it is important that you know what to expect from a debt collector so that you can identify red flags when you see them!
In this article our Aussie debt collectors will discuss several things that you can expect when working with debt collection agencies for success so that you know a little more about the process before starting it.
What is a Debt Collection Agency?
A debt collection agency is in the business of collecting debts on behalf of business/company creditors.
These agencies may be hired by small to medium and large businesses, credit card companies, utility providers, or any other type of commercial or business creditor.
Debt collection agencies typically charge a fee for their services, which is usually a percentage of the amount recovered.
A debt collection agency can play an important role in helping business creditors recover debts that would otherwise be written-off, but they must operate within strict legal guidelines to ensure that debtors are not treated unfairly.
This includes guidelines around the frequency and timing of contact with debtors, the use of deceptive or misleading tactics, and the protection of debtor privacy.
Debt Collection Agencies Expertise and Experiences
The first thing that you should expect when you are working with a quality debt collector is expertise and experience.
Debt collectors, as we’re sure you are aware, are professionals in debt recovery.
They dedicate their careers to retrieving debts for creditors that are struggling to do so for whatever reason and put in place a series of steps and actions to collect that debt once and for all.
With this profession comes some serious experience and, in turn, expertise in the trade.
There is only so much that you can study; some have to be learnt in action.
Through their experience, debt collectors develop a level of expertise that takes creditors twice as long to master.
When you work with a debt collector, you will find that they have a lot of expertise and experience up their sleeves, ready to use to collect your debt!
Tools and Opportunities of Debt Collection Agencies
Another great thing that you should expect when you are working with a quality debt collector is access to tools and opportunities.
When you work with a debt collector, you open your business up to a whole new variety of debt collection tools.
As we discussed, a debt collector’s job is to, well, collect debts, so they have likely invested in a wide variety of tools to make their practice more effective in doing so.
A great example of this is skip tracing, the process of finding a debtor that is missing or has run from their debt so that you can collect from them.
Many debt collectors have better access to tools that they can use and databases that they can subscribe to so that they can better find debtors.
Also, as you work with a debt collector, you free up time for yourself to explore different areas of your business!
Professionalism of Good Debt Collection Agencies
Another great thing that you should expect when you are working with a quality debt collector is professionalism.
Debt collection is a difficult thing to do. Not only this, but, as a creditor, you have a personal collection of the debt and stakes in its collection, as it is likely your primary income.
When these things combine, it can be easy to not be as professional as you would like to be!
A good debt collector will always remain professional and be polite and cordial with your debtor.
This can protect the reputation of your business and make debt collection much smoother and better running.
Legal and Other Compliance
Another great thing that you should expect when you are working with a quality debt collector is legal compliance. Legal compliance is vital in debt collection.
There are several guidelines and laws that must be followed for the rights of the debtor to be upheld.
If these guidelines are not followed, serious penalties can apply, and the reputation of your business can be seriously harmed!
Debt collection agencies have a better understanding of the laws and know how to follow them, which is something that not all creditors have as they simply do not have as much information or experience.
The first step in operating a debt collection agency in Australia is to understand the legal framework.
The ASIC's guidelines set out the rules and regulations that debt collectors must follow when collecting debts.
Therefore, they will better hold up guidelines and protect your business from legal strife!
Licensing Requirements for Debt Collection Agencies
In Australia, debt collection agencies are required to be licensed (debt collectors or field agents).
To obtain a license, debt collection agencies must meet certain requirements, including:
- Having a minimum level of education and experience in debt collection.
- Being of good character and reputation.
- Meeting financial requirements, such as having adequate insurance.
- Having a compliant debt collection policy and procedures manual; and
- Have a compliance program in place.
Debt collection agencies must also meet certain fit and proper person requirements, which means that their directors, officers, and key personnel must be of good character and have the necessary skills and experience to run the business.
Once licensed, debt collection agencies must comply with ongoing regulatory obligations, such as submitting annual compliance statements and undergoing regular audits to ensure that they continue to meet the licensing requirements.
You may be refused a license if the applicant is not a fit and proper person, or if the applicant has engaged in misconduct in the past.
Prohibited Conduct by Debt Collection Agencies
Debt collection agencies are prohibited from engaging in certain conduct when attempting to collect a debt. Prohibited conduct includes:
- Contacting the debtor at unreasonable hours or in an unreasonable manner.
- Failing to disclose the amount of the debt and the identity of the creditor.
- Falsely representing that legal action will be taken against the debtor.
- Harassment or intimidation of the debtor; and
- Making false or misleading representations.
Debt collection agencies must also comply with guidelines around the frequency and timing of contact with debtors, including restrictions on contacting debtors outside of certain hours or contacting them at their place of work.
A debt collection agency must protect the privacy of the debtors (people who owe the debt) by not disclosing the debt to any unrelated third parties without their consent.
Breaches of these guidelines can result in damage to the reputation of the debt collection agency.
By prohibiting these types of conduct, Australian law seeks to ensure that debtors are treated fairly and with respect, and that debt collection agencies operate in a lawful and ethical manner.
Guidelines for Contacting Debtors
Debt collection agencies are required to follow specific guidelines when contacting debtors. These guidelines include:
- Contacting the debtor only between certain hours.
- Not contacting the debtor at their place of work if it's not allowed by their employer.
- Not contacting the debtor if they are in financial hardship.
- Not contacting the debtor if they are under 18 years of age or are deceased.
- Not contacting the debtor if they have requested that contact cease.
Debt collection agencies must not use deceptive or misleading tactics, such as pretending to be someone they are not or making false threats.
Instead, they must clearly identify themselves and provide accurate information about the debt in question.
By complying with these guidelines, debt collection firms can ensure that they collect debts in a fair and ethical manner while also protecting the rights of debtors.
Guidelines for Debt Collection Practices
Debt collection agencies must also adhere to specific guidelines when attempting to collect a debt. These guidelines include:
- Not imposing additional charges or interest without the debtor's consent.
- Not taking action that would cause the debtor to incur additional expenses.
- Not taking action that would embarrass or humiliate the debtor.
- Providing the debtor with a copy of the contract or other evidence of the debt if requested; and
- Providing the debtor with written notice of the debt and the identity of the creditor.
Debt collection agencies must not use physical force or coercion to collect a debt, and they must not threaten legal action that they do not intend to take.
Debt collection firms must also offer accurate debt information, including the amount owing, as well as clear and simple information on the debtor's rights and choices.
In addition, debt collection firms must respect the privacy of debtors and not disclose their debt to third parties without their consent.
By following these guidelines, debt collection firms can ensure that they operate in compliance with the law and maintain a positive reputation in the industry.
Tailored Collection Solutions
Another great thing that you should expect when you are working with a quality debt collector is a tailored collection.
Each client is different and has different needs. Debt collection agencies understand this and can make better decisions regarding how to treat each client to better collect from them.
This is something that comes with experience and the time and effort that collectors put into their methods due to their focus on simply collecting debts.
This can mean that your debts are collected in a way that is more effective and better suiting to the client, making it a win-win!
Persistence of Good Debt Collection Agencies
Another great thing that you should expect when you are working with a quality debt collector is persistence.
Sometimes when a client is particularly difficult and you are already balancing so many others, it can be easier to simply cut your losses and give up.
Debt collection agencies, on the other hand, have been trained to have a lot more patience and options with debtors, so can be more persistent in collecting a debt.
Shared Goals - No Win No Fee
Another great thing that you should expect when you are working with a quality debt collector is shared goals to collect.
When you work with a debt collector you both have one thing in mind, collecting that debt!
Debt collection agencies often work on a “no collection, no fee” policy, meaning that they get paid depending on their success also!
This means that you both want this debt collected, and you can collaborate in order for it to get done.
This differs from many other professionals that you may seek help from in your business, who will be paid regardless!
Conducting Due Diligence
Before taking on a debt collection job, it is important to conduct due diligence on the debtor.
This includes verifying their identity, checking their credit history, and assessing their ability to repay the debt.
Debt collection agencies must also ensure that the debtor has been given sufficient notice and time to pay the debt before commencing legal action.
Maintaining Accurate Records
Debt collection agencies must maintain accurate records of all communications with the debtor.
This includes keeping a record of all phone calls, letters, and emails, as well as any payments made by the debtor.
Debt collectors must also ensure that they do not disclose the debtor's personal information to third parties without the debtor's consent.
Dealing with Vulnerable Debtors
Debt collection agencies must be sensitive to the needs of vulnerable debtors, such as those who are experiencing financial hardship or mental health issues.
Debt collectors must comply with the ASIC's guidelines on dealing with vulnerable debtors.
This includes offering support and referring the debtor to appropriate services where necessary.
Disputes can arise between debtors and debt collectors.
Debt collection agencies must have a dispute resolution process in place to deal with complaints from debtors.
This process should be fair, transparent, and accessible to all parties.
Treating Debtors with Respect
Debt collection agencies must treat debtors with respect at all times.
This includes avoiding abusive or threatening language and ensuring that debtors are not harassed or intimidated.
Debt collectors must also ensure that they do not misrepresent themselves or their actions to the debtor.
Using Technology to Improve Collections
Technology can be used to improve debt collection processes.
Debt collection agencies can use automated payment reminders, SMS messages, and online payment portals to make it easier for debtors to pay their debts.
Technology can also be used to streamline debt collection processes and reduce costs.
Investing in Training and Development
Debt collectors should invest in the training and development of their staff.
This includes providing ongoing training on debt collection laws and regulations, as well as customer service skills.
Staff should be equipped with the knowledge and skills to deal with difficult situations and to provide appropriate support to vulnerable debtors.
Conduct Thorough Research on the Debtor
Before reaching out to the debtor, it's crucial to conduct thorough research to gather as much information as possible.
This includes their current address, phone number, email, and other contact details.
The more information you have, the easier it is to track down the debtor and start the debt collection process.
Utilise Multiple Communication Channels
In today's world, people use various communication channels, such as email, phone, text messaging, and social media.
Debt collection agencies should utilise all available channels to reach out to debtors.
This approach ensures that debtors receive reminders and notifications, and it also increases the chances of getting a response.
Establish a Payment Plan
Sometimes debtors may be willing to pay, but they may not have the funds to pay the entire amount owed.
In such situations, debt collection agencies should establish a payment plan that allows the debtor to pay off the debt in instalments.
This approach makes it easier for debtors to pay off their debts, and it also increases the likelihood of getting paid.
If the debtor is willing to pay but can't afford the entire amount, debt collection agencies can offer settlements.
This means that the debtor pays a percentage of the total amount owed, and the creditor writes off the remaining balance.
Settlements can be an effective way to get paid while avoiding expensive legal proceedings.
Utilise Legal Proceedings as a Last Resort
Legal proceedings can be costly and time-consuming.
Therefore, debt collectors should only utilise legal proceedings as a last resort.
Exhaust all other options before proceeding with legal action.
Maintain Accurate Records
It's essential to maintain accurate records of all communication and transactions with debtors.
This includes details of phone calls, emails, text messages, and payments made.
Accurate records ensure that debt collectors can track progress and provide evidence if legal action is necessary.
Provide Regular Updates to Creditors
Debt collectors must provide regular updates to creditors on the progress of debt collection.
This includes updates on payments received, communication with the debtor, and any legal proceedings.
Regular updates keep the creditor informed and increase transparency.
Dispute with a Debt Collection Agency
Dispute resolution methods include (but not limited to):
- Negotiation between the debtor and the debt collection agency
- Mediation through an independent mediator
- Referral to the Australian Financial Complaints Authority (AFCA), which is a free and independent dispute resolution scheme.
Debt Collection Agencies - Key Takeaways
Making the call to hire a debt collector can be a difficult one.
It can be helpful to know what you can expect from a high-quality debt collector so that you can find your perfect fit.
Remember, not all debt collectors will follow these expectations, so make sure you search the field and make an informed decision about who you will choose to hire.
Debt Collection FAQs
What is a debt collection agency?
A debt collection agency is a company that specialises in collecting overdue debts on behalf of creditors.
What regulations do debt collection agencies need to follow in Australia?
Debt collectors in Australia are regulated by the Australian Securities and Investments Commission (ASIC) and must comply with the ASIC's debt collection guidelines.
Can debt collection agencies use abusive language or engage in harassment?
No, debt collectors must treat debtors with respect at all times and avoid using abusive or threatening language.
Is it important for debt collection agencies to invest in staff training and development?
Yes, debt collection agencies should invest in the training and development of their staff to ensure that they have the necessary skills and knowledge to deal with difficult situations and to provide appropriate support to vulnerable debtors.
What should debt collection agencies do if a dispute arises with a debtor?
Debt collectors should have a dispute resolution process in place to deal with complaints from debtors. This process should be fair, transparent, and accessible to all parties.
Can a debt collection agency take legal action against me if I can't pay my debt?
Yes, debt collection agencies may take legal action against you if you do not pay your debt. However, they must follow strict guidelines and regulations around debt collection practices and cannot engage in practices that are considered to be misleading, deceptive, or harassing.
Can a debt collector contact my employer or family members?
Debt collection agencies are generally prohibited from disclosing a debtor's debt to third parties without their consent. This includes contacting their employer or family members. However, debt collection agencies may contact third parties in certain circumstances, such as to locate a debtor or verify their employment or address.
What should I do if I am being harassed by a debt collector?
If you believe that a debt collection agency is harassing you, you should first try to resolve the issue directly with the agency. You may also wish to seek legal advice to understand your rights and options.
Advance debt collection is an Australia-wide commercial debt collection agency and credit and accounts receivable management. We can recovery your debts, conduct skip tracing, and manage your accounts receivable. We collect your debts for commission only. This means no collection, no commission. We are professional debt collectors with combined 20 years of experience to help you collect your debts. We are partnered with expert litigation lawyers with years of experience in debt recovery, enforcement, and insolvency. Under the Agents Financial Administration Act 2014 Advance Debt Collection Pty Ltd hold authority number 4583821 to act as a debt collector. ADC Advance Debt Collection® is a registered trademark.