While most companies would hope to never require the services of a debt collector, a business facing financial difficulty is unfortunately a reality for many. There are various reasons why a business will fall into debt. Recently, continuing uncertain economic conditions have been a major contributor, resulting in some negative impacts on business. While the recent cut in interest rates means money is expected to begin to flow more fluidly, factors such as fear over job security and reduced government benefits for families are currently contributing to low turnover for companies. When a business falls into debt, creditors will generally deal directly with debtors to resolve any outstanding debts. Sometimes, however, they may engage the services of a debt collection agency to recover their money. The below provides a simple guide for businesses who may be dealing with debt collectors for the first time, or have queries about some of their processes.

Regulation

In July 2014 the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC) updated their industry guidance, Debt Collection Guideline for Collectors and Creditors to reflect significant changes to the law, such as the introduction of the Australian Consumer Law in 2011 and changes to privacy laws in Australia in March 2014.

Whilst this Guideline focuses on the responsibilities of creditors and collectors, both the ACCC and ASIC recognise that debtors have responsibilities too. Debtors are legally responsible for paying the debts they legitimately owe.

What should you consider when engaging a debt collector?

Remember, you will be held liable for your agent's actions. Accordingly it is of the utmost importance that you only engage the services of a reputable licensed professional agency. Business to Business (B2B) debts require a more sophisticated set of competencies to those required to recover Consumer Debts. You need to be sure to engage a company that is quality accredited and specialises in the fields you require. Choose a company that understands your specific needs and can provide customised solutions whilst maintaining an environment of strict compliance with all legislation.

What should you expect from your debt collector?

Professional debt collectors are obliged to be fair and ethical in their approach to each debt. If you couple this with the fact you want debts collected without alienating your entire client base, you should expect a debt collector to strike up a professional working relationship with the debtor.

The debtor is entitled, and it is a legitimate strategy, to negotiate a repayment arrangement their business can afford. This will ensure a realistic approach is adopted and the debt is cleared as soon as is reasonable, allowing all parties to move on as soon as possible. Setting clearly defined parameters and boundaries for your debt collectors' authority to negotiate on your behalf will expedite a speedy and solid arrangement. Where a repayment plan has been renegotiated with your debtor, the debt collector will confirm the terms of the agreed arrangement in writing.

This will minimise any ambiguities or misunderstandings and will give your debtor the opportunity to contact the collection agency in case they disagree or are unclear about any aspect of the agreement.

Taking legal action

Whilst the guide is mainly concerned with non-court debt recovery process and collection activities before a court action is commenced, or after a court judgement, you have the option to take legal action to collect a debt, conduct legal repossession activities, or enforce judgement through a court process. Once you have a judgment you can use the legal process to bring even the most recalcitrant debtor to their sense.

If a debt collector is unable to negotiate a satisfactory repayment arrangement with your debtor, you will be asked to authorise proceeding with legal action. Most civil debt matters are quickly resolved. Upon being served with a summons, the majority of debtors simply pay the debt and the court scale legal cost being claimed. Those with cash flow problems will negotiate a satisfactory repayment arrangement. Very few, less than 2%, will file a defence. Professional debt collection agents employ highly skilled solicitors experienced in guiding proceedings to a favourable judgment in the shortest possible time. Debt collectors will not seek payment from a creditor until the debt is collected.

What a debt collector will expect from you

Contact by debt collectors should only be for a reasonable purpose. When approached by a debt collector, your debtors need to be cooperative. They can expect to be treated in a professional, courteous and ethical manner. You should not ask debt collectors to threaten, harass or attempt to intimidate your debtors. Debtors have rights and those rights have provisions for penalties for contraventions of the Commonwealth consumer protection laws to be imposed upon both you and your debt collector.

In summary, debt collection does not have to be a stressful necessity in your business. Debt collectors can be a very useful ally to help you regain and maintain control over your debtors’ ledgers and cash flow, and can help you grow by giving you more time to focus on your core business functions.

Don’t let debt capsize your enterprise – take the lead and take control so you can get back to doing what you do best!

For more information, you can visit the ACCC website at: https://www.accc.gov.au/ publications/debt-collectionguideline-for-collectors-creditors. http://www.accc.gov.au/consumers/ debt-debt-collection

Phylline Comia AIPA MICM is a  Compliance Officer at Austral Mercantile Collections Pty Ltd.

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