Most Australian companies will at some point or another use a debt collection agency, and yet not many businesses understand the process. So, in this article we will answer some of the most frequently asked questions about debt recovery and collection.
Will using a debt collector damage my customer relationships?
The short answer is no, debt collectors adhere to the highest standards of ethics and follow the strict guidelines for collectors and creditors when recovering outstanding debts.
Using a third party to recover your outstanding debts will not negatively impact your customer relations, if anything using a collection agency will help improve your customer payment terms.
Is there only one way to collect debts?
No, in Australia there is a number of ways to collect debts, such as legal debt recovery – this is where you file a legal action against the debtor, or non-court debt collection which is the process where you collect or you engage the services of a debt collector to recover the debt on your behalf.
You should also note that debt collection agencies will also specialise in what debt the focus on, some will collect large debts for large corporations, while others collect debts for small to medium sized business. It is a matter of choosing the right agency to suit your business needs.
What is the cost of debt collection?
There are several factors that will influence the cost of the recovery of debts such as:
- What type of debt collection service you require for your business.
- How old the unpaid debt is for; and
- The collection agencies commission rate.
Typically, the collection fee is more for a older, and collection companies will charge between 10% – 35% commission prior to commencing recovering the debt. However, there are debt collection agencies that will only charge a commission on the successful recovery of the debt, this simplifies the process for the collection agency and the client.
When is the best time for pursuing a debt?
An invoice, generally speaking becomes overdue at the point in which your customer exceeds your agreed credit terms and debt collection should be started at the moment.
For example if your company invoices on the first of the month with payment due 7 days from issue the invoice is then overdue on the 7th day.
You can being the debt collection process with friendly reminders of the outstanding debt via email or phone, if after a number of attempts to recover the debt have failed it is then following up with a letter of demand is recommended.
Are old debts recoverable?
Yes you can recover older debts, but there is a statute of limitations, simple contracts have a statute of limitation of 6 years in Australia, with the expection of the Northern Territory which is 3 years.
Debts that have passed the statute of limitations means you are no longer able to make a claim and take the debtor to court for payment, if you were to pursue the debtor in court, the debtor would have a valid defence not to pay. If you have a debt that is considered “statute-barred” it is essential to consult a legal practioner for advice.
Which is better a debt collection agency or law firm?
Often debt recovery can be complicated. In most cases recovering outstanding debts can be successful handled either by in house collection or collection agency, however there are some cases that you will need to seek advise form a professional debt recovery lawyer.
Using a debt recovery lawyer will help you understand the legal process if you wanted to pursue the debt through the courts.
Can debts be recovered from an Australian company if I am overseas?
Yes, debtors located in Australia can be contacted in an attempt to recover outstanding debts for overseas clients.
What happens if the debt is not recovered?
If the debt collection agency fails to recover the debt and you do not wish to escalate the matter, the file is closed.
A creditor will need to go to a debt recovery lawyer for legal recovery.
What is the debt collection success rate?
It is estimated that a reputable collection agency’s success rate is around 85%.
Every collection agency would like to recoup 100% of the debt 100% of the time, however each debt recovery matter is different and can have unique circumstances that make it impossible to recover.