AICM’s CEO Nick Pilavidis recently asked me to comment on the emerging trend in the UK away from the use of the term 'debtor' to 'customer' and whether there was any similar change underway in Australia. Responding to this request caused me to reflect that many in the Australian collections industry over recent years have been confused as to what is the appropriate contemporary term to use when referring to the party being followed up for payment of an outstanding account. Terms like “debtor” and “creditor” seem outdated now despite valid origins relating to how transactions have been described within accounting conventions. Accountants still use those terms but the wide adoption of business software applications such as MYOB and Xero has changed how others describe those transactions. Software developers keen to simplify terminologies for persons not trained as bookkeepers to understand transactions being recorded made some changes such that we have seen “Debtor” replaced by “Customer” and “Creditor” replaced by “Supplier” – similarly Accounts Payable” became “Pay Bills” whilst “Receive Payments” replaced “Accounts Receivable”.
A review of current regulations fails to reveal any change to descriptors being adopted by industry regulators. Interestingly, the ACCC/ASIC Debt Collection Guideline1 which is the most important compliance document for collectors and creditors alike, in its Glossary of Terms defines “Debtor” as “a natural person obligated or allegedly obligated to pay a debt” but does not include any definition for either “Customer” or “Consumer”. Potentially, the introduction of the Australian Consumer Law in 2010 (the ACL) presented an opportunity to introduce a redirection for consistent descriptors to be used but I discovered its definition of “Consumer” within this legislative regime was not all embracing. The National Consumer Credit Protection Act 2009 includes a definition for “Consumer” as a “natural person or a strata corporation” but has no definition for “Customer”. The National Credit Code which is Schedule 1 of that Act defines “Debtor” as “a person (other than a guarantor) who is liable to pay for (or to repay) credit, and includes a prospective debtor”.
Trend away from “debtor”
Despite the lack of change within legislation and regulations impacting on debt collections, there is nevertheless a trend in Australia away from using the term “debtor”.
Such a trend however is not without some issue for those in the collections industry. For example, in moving away from using the descriptor “debtor’ a problem for contingent collectors acting as an agent for principal creditors is that the term “customer” from the collector’s own perspective refers to the party it is acting for. The adoption of the term “customer” within the collector’s operations and records when dealing with and referring to an individual or business debtor owing monies to its principal seems wrong and potentially creates confusion as to which party is being referred to.
In a recent UK article (by Sean Feast, Managing editor of the Chartered Institute of Credit Mangement's Magazine) about the trend away from “debtor”, an observation was made that “a company being labelled as a debtor appears to be viewed as less confrontational than an individual being identified in the same way” – this has similar resonance in Australia.
The trend in Australia over recent years has been away from using “debtor” and instead the term “consumer” rather than “customer” has increasingly been adopted whenever collectors and agents refer to individuals and businesses more traditionally known to them as debtors. This trend appears to be driven more by a change of attitude and expectations rather than just being a case of semantics.
Some reasons for this change include:
- Banks and other financiers directing the use of the descriptor for their customers
- The introduction of the National Consumer Credit Protection Act 2009
A similar change has occurred in the US where collectors now talk about “connecting with consumers to resolve accounts” rather than “chasing debtors to pay bills”.
Setting the tone
Collectors understand their role today is all about communicating with consumers – this involves engaging effectively to understand what they want and need in order to resolve the specific outstanding debt.
By itself changing the name or descriptor adopted when referring to the individual owing the account away from the traditional “debtor” will count for little unless the collector’s approach allows the individual to feel respected and to maintain dignity in discussions. An effective approach includes the collector being aware of the individual’s situation and offering where appropriate assistance and genuinely seeking an achievable and affordable solution for the individual.
The continuing challenge for collectors is how to best engage effectively whilst meeting the regulatory requirements of what to say and when to say it and at the same time avoiding the risk of misunderstandings which can arise when the parties to the conversation can’t see the other’s body language. Another impediment to establishing effective engagement is often the strong negative views some in the community hold about the collections industry and processes.
More than ever there is a need for collectors and agents to ensure the right tone is achieved for conversations so as to deliver effective outcomes – a change in the name or descriptor for the party being contacted to pay a debt or account to something which the individual sees as positive and respectful is a good and subtle step towards developing and maintaining respectful conversations.
Compliance obligations and expectations of collectors mean it is not sufficient to communicate so as to be understood but increasingly to communicate in a manner so it is impossible to be misunderstood! Setting the right tone in conversations between collectors and consumers will assist to avoid unhelpful misunderstandings.
Alan Harries is CEO of the Institute of Mercantile Agents and can be contacted at firstname.lastname@example.org
FOOTNOTES: 1 ASIC Regulatory Guide 96: Debt collection guideline for collectors & creditors published 10 July 2015