Successful debt collection is important to sustain cash flow and business health. But, collection of commercial debt in Australia is a complicated procedure which is subject to rigid legal and regulation stipulations. In their quest to collect overdue debt, many businesses commit unnecessary errors which may slow the collection process, ruin relationships or even result in court cases.
The following are some of the more usual pitfalls in commercial debt collection – and the best ways to circumvent them.
Neglecting to maintain a proper documentation
Record-keeping is one of the most common and expensive errors in debt collection. Companies find it difficult to collect debts due to lack of proper full and accurate records of the transaction, contractual terms, the invoices and records of communication.
How to avoid it:
Keep a clean paper trail of any business relationship. You should make sure that all agreements are written and signed, and have well-established terms of payment and the result of late payment. Retain invoices, statements, emails and any other communication with the debtor. This documentation can be a great help in proving your point in the case of a disagreement.
Delaying Collection of Delinquent Debts
Most creditors are afraid to take quick action to collect their debts, hoping that the debtor will someday make good. It is unfortunate that the more time a debt is outstanding, the more difficult it is to collect. Debtors can go insolvent, switch contact information or just pull the plug.
How to avoid it
Use a formal credit control mechanism. Send gentle yet strict reminders immediately a payment is due. When there is no response to internal follow-up over a reasonable period of time, usually 30 to 60 days, contact a professional debt collection agency or legal advisor. Early intervention shows that it is serious and its chances of recovery are high.
Disregard of Legal and Regulatory Compliance
The Debt Collection Guideline regulates debt collection in Australia by the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC). Companies which resort to harassment, misleading and excessive aggressive methods of collecting money will be prone to violating the Australian Consumer Law and be subjected to heavy fines.
How to avoid it
Make sure that all collection activities are legal and ethical. Not too much contact or threats or publicity about debts. When outsourcing debt collection, employ a qualified agency that is knowledgeable of the regulatory structure and maintains professionalism standards. Check with the lawyer before initiating any enforcement action.
Ignoring Security Interests and Contractual Rights
Businesses do not always enforce their contractual rights or do not enter their interests in the Personal Property Securities Register (PPSR). Lack of proper registration can result in a creditor losing priority to recouping payment in the event of insolvency of a debtor.
How to avoid it
Check with your lawyers on credit terms and security provisions. Retention-of-title or personal guarantees may be appropriate to consider. Security interests on the PPSR should always be registered to maintain your rights on the PPSR in the event of default or insolvency.
Finding Itself Growing Out of Control
Legal proceedings are a powerful recovery mechanism, but not always the first good step. Litigation is often expensive, time consuming and can permanently damage business relationships.
How to avoid it
Consider alternative dispute resolution (ADR) as a negotiation or mediation before initiating legal action. Structured communication or settlement agreements can help resolve many disputes much more efficiently. When legal action must be taken, make sure you have a clear picture of the cost, duration and possible consequences.
Failure to Seek Legal Advice at the First Stage
Companies usually seek an lawyer only after their debt issue becomes life threatening. At that time, options to recover might be scarce.
How to avoid it
Use established commercial lawyers at the outset. They may help to prepare strong credit terms, conduct reviews, provide advice on statutory demands and ensure that all recovery activities do not contravene Australian law. Early intervention in legal matters can often eliminate expensive litigation and enhance recovery.
Final Thoughts
Debt collection is the fine art of assertiveness and compliance. Not only can you increase your chances of successful recovery by avoiding these pitfalls, but you will save your business reputation and relationships. You can recover commercial debt vs consumer debt efficiently and legally in Australia, with clear procedures, legal awareness and timely professional advice.
