Debt Collection Services Australia
Debt collection services in Australia can seem complex, with a number of state and federal legislative and regulatory instruments governing the practice and industry. As your small business grows and accumulates more trade credit customers, you’re more likely to be using debt collection services to deal with past due invoices and bad debts. As you start to include debt collection services in how you do business, it’s important to understand the new landscape you find yourself operating in.
1. Are all debt collection services in Australia the same?
No. Your small business has a number of options when it comes to collecting its overdue debts...and a number of providers. Some providers will be large debt collection firms, some will be sole operators or debt collectors. Software providers like ezyCollect offer debt collection services in the form of automated invoice payment reminders and online collections. Lawyers offer debt collection services. Read our blog post for more detail about these options for small businesses.
2. When is the right time to pursue a debt?
Every day that an invoice is unpaid is costing your business valuable working capital. As soon as a debt becomes overdue, your business should be sending polite email or SMS reminders to debtors to pay their bills. Pick up the phone and have a conversation. It’s important to give debtors reasonable time between reminders to take action. Your business should determine its own timeline of when debts are entering the danger zone of being unrecoverable. By tracking your payments trend you might decide that 60 days overdue is the right time to escalate your collection to a debt collection agency.
3. What are the advantages of using an external debt collection service?
The immediate advantage is that debt collection services improve your cash flow by recovering cash that was locked away in unpaid invoices. And because you’re outsourcing the task, your time (or your staff’s time) is freed up to be productive in other parts of the business.
4. How much does a debt collection service cost?
The cost really depends on the service you are buying. For example, if your service is automation technology, you might be paying an annual or monthly subscription fee depending on the number of debtors in your business (see ezyCollect’s pricing page as an example). If you’re engaging a debt collection agency, the rule of thumb is the older the debt, the more expensive is the commission rate (as stubborn debts are harder to resolve). Most commission rates for debt collection services vary between 5 and 30 per cent of the value of the debt. If your debt collection service is issuing a letter of demand on your behalf, you might pay on average $40 to $80 for a single letter.
5. Can a debt be too old to recover?
In Australia, there is a six year limitation (except in the Northern Territory, where it is three years) to pursue a debt from a simple contract. A debt is considered ‘Statue Barred’ once it's more than six years overdue (generally from the date of invoice, though other conditions apply). A debtor can claim complete defence of the debt if they assert the debt is Statute Barred. Small business owners are recommended to get legal advice for debts that may be Statute Barred.
6. What are my obligations as a creditor?
Debt collection activities in Australia should be undertaken in a way that is consistent with consumer protection laws. The Australian Competition and Consumer Commission (ACCC) is an independent authority of the Australian Government, and along with the Australian Securities and Investments Commission (ASIC), it enforces laws relevant to debt collection. Because creditors may be responsible for their agent’s collection activities and may remain liable for conduct regarding a debt despite having sold or assigned the debt, they should be aware of their responsibilities as written in Debt Collection Guidelines for Creditors and Collectors.
7. Can I add collection costs to my debtor's overdue invoice?
Unless your customer signed a contract that included a clause about costs and penalties for late payments, you cannot subsequently add collection costs to what your debtor owes you. If you engage a debt collection agency, they may review the terms and conditions of your agreement with the defaulted party and advise you on your rights to pursue costs. If you are pursuing the debt through legal avenues, then recovery costs can generally be included as part of the court costs you can claim if you are successful. A lawyer is the best person to advise on costs claimable through the legal process.
8. Should I accept a progress payment plan?
Your debtor may be able to pay their debt over time—an agreed amount paid in intervals. Negotiating a payment plan is a common strategy to recover cash via a sustainable payment arrangement. The ACCC and ASIC encourage creditors to be flexible with debtors who have expressed financial hardship.
9. Can I refer my debtor to a debt collector if I don’t have any contact details?
A debt collector can accept your file even if you don’t have up-to-date contact details for your debtor. Debt collectors typically enact a number of resources to locate debtors who are missing in action. It’s best to check if the payment fee to your debt collector will vary because of the difficulty of each case.
10. How do I select the right debt collection service for my business?
A simple cost-benefit analysis will help you determine which type of debt collection service will give you the best returns on cash flow and time and labour saved. You should also consider if you want your debt collections to remain in-house (managed by your staff) or outsourced (e.g. to a debt collection or legal agency). Automation technology managed from within your business gives you the flexibility of managing the process yourself, while saving time. (You can try ezyCollect's ROI calculator to estimate your savings here.)
To see how your business can pursue overdue debts without delay, book a demo or send us an email to email@example.com.