Last editedOct 20212 min read
Business owners often put their primary focus on generating sales, but what happens when clients don’t pay? If you’re owed money, it’s important to understand what your debt collection rights are. Fortunately, these are clearly spelled out under Australia’s debt collection guidelines. Here’s what you need to know before attempting to recover any debt.
What are the Australian debt collection guidelines?
The Australian Competition and Consumer Commission (ACCC) and Australian Security and Investments Commission (ASIC) produced a set of debt collection guidelines in 2005, recently updated to reflect changes to consumer rights. Titled the ‘debt collection guideline for collectors and creditors’, it spells out the rights and obligations for both creditors and debtors within Australia. You can read the full guide here.
The guiding principle is that of debt collection fairness, meaning that creditors must treat debtors with fairness and respect. Creditors are not allowed to harass, coerce, or mislead debtors, nor can they pursue a debt without reasonable grounds to do so.
Debt collection guidelines for creditors
So, what does this all mean for businesses? According to the ACCC, if someone owes you money your debt collection agent can only communicate with them within reason. Reasons to get in touch include:
Find out if payment has failed
Give information about the account
Explain the consequences of non-payment
Offer a repayment plan
Offer a proposal to settle the debt
Offer to change the terms and conditions of the debt
Learn whether the debtor’s contact details have changed
Find out why communication attempts have failed
Of course, if a debtor wants to speak to the creditor this is another valid reason to get in touch. Creditors are encouraged by the guidelines to be fair and flexible when offering payment plans, recognising genuine financial hardship or other difficulties.
Debt collection guidelines for debtors
What about the guidelines for debtors? If your business owes money, you’ll also have a set of obligations to follow. Debtors are legally responsible for repaying their legitimate debts. The Australian debt collection guidelines also state that you shouldn’t avoid this obligation. Instead, it’s important to get in touch with creditors to explain your situation and work out a payment agreement that you can stick to. Debtors should also seek out a financial counsellor or solicitor if they’re having difficulty with repayments, for legal advice.
When to outsource debt collection
If your initial attempts to chase down outstanding payments have failed, you might be wondering if it’s time to enlist the help of debt collection services. The guidelines state that creditors have two methods for recovering debt. They can pursue the money through the courts or use a third-party collection agency. The court system comes with a strict set of regulations, so you run little risk of falling afoul of the rules.
Some care should be taken when you outsource debt collection, however. As the creditor, you’re responsible for the behaviour of your debt collection agents. For example, debt collectors are banned from the following activities under Australian law:
Using physical force
Harassing the debtor
Misleading the debtor
Taking advantage of vulnerabilities
Examples of illegal behaviour could include things like intimidating a debtor by repeatedly showing up at their home or work. Agents cannot threaten legal action they’re not authorised to take, nor can they repeatedly phone the debtor to wear them down.
You’ll need to ensure all agents are following the guidelines. That being said, there are plenty of benefits to using professional debt collection services:
Cost reduction: Professionals offer scalable services to suit small businesses.
Better productivity: Chasing up on unpaid debts is time-consuming as well as costly. Outsourcing this activity leaves more room for your everyday business operations.
Debt resolution: The best debt collection agencies have years of skill and know how to resolve disputes to keep all parties happy.
By using a third-party collection service, you can maintain a positive working relationship with your clients. This keeps debt collection at a distance, while ensuring you get paid in a timely manner.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.