Is your debt recoverable?

Recovering debts can often be one of the most difficult parts of running a business, and sometimes it can be make-or-break. A number of questions abound – how long before the debt is written off? How long can a debt be chased? The debt collection process normally comes attached with a huge amount of heartache and frustration.
But there is good news. There are likely to be inexpensive and reliable debt collection options open to you. A good debt collection agency may save you money and time in this regard.

Even though you may feel like your debt is a lost cause, there are some questions you can ask to determine if it is recoverable. We’ve summarised them below.

1. How old is your debt?

One of the quickest ways to determine whether your debt is recoverable is to look at how old the debt is. Keep in mind that if no acknowledgment or action has been taken on the debt for more than six* years, the debt is written off. This means the debtor (person who owes the debt) has not acknowledged owing the debt in writing, or made a payment (a form of admission of debt) and is called “statute barred debt”.

There is, however, an exception to this rule. If court action has been commenced within those six* years, then the creditor or debt collection agency will normally be able to start the clock again and have another six* years to recover the debt (as set out by the statute of limitations). But once that six* years passes, the debt is considered statute barred and is gone for good.


*Note: the statute of limitations in the Northern Territory is three years.

2. Have your debtors disappeared?

Runaway debtors are undoubtedly one of the most common issues when trying to recover a debt before it gets past the statute of limitations. But the good news is that in these situations, debt may still have a chance at recovery.

Keep your customer database up to date

One of the best ways to foster successful debt collection is to make sure you keep accurate client records and update them annually. Gather complete records including a secondary contact, phone details, postal address, legal contact and physical address. These details all contribute to successful resolution, especially if a debt collector becomes involved.

Whilst companies can be served reminder letters for payment and formal notices by registered post, in order for a debt collector to proceed with legal action against an individual, they will require an address so that they can serve these personally. Collecting and updating addresses is therefore particularly vital for individual debtors.

It’s also important to maintain precise records of every attempt made to contact debtors – so that if the matter winds up before a court, you’ll have detailed information to rely on.

Persistence pays off

In tracking down your debtors, persistence is key – and following a simple, efficient debt recovery process. Begin with a friendly reminder via phone or email.

If that is unsuccessful, try contacting someone else in the business that has the ability to authorise payments (in order to avoid embarrassing or undermining the original contact), before progressing to a final notice via phone or email.

At this point attempting direct contact by visiting the customer may be an option and can help in creating a personal relationship with the customer, which is beneficial in the long term. If trying all of these steps brings no resolution, then send a formal letter of demand.

Remember that maintaining positive relationships (where possible) throughout the collection process will always serve you best. Follow the debt collection guidelines as to not harass or coerce your debtors.

3. When a debtor becomes insolvent

If a debtor goes into liquidation it can make the debt collection process tricky. But there are a few things you can do to maximise your chances of getting a dividend at the end of the day.

Stay in touch with your customers

The best way to minimise your risk is to speak to your customers regularly so that you can identify when they start to struggle. That way you can stay ahead of the curve and put a plan in place to protect yourself. Be aware of preferential payments – if you arrange a payment plan with your debtor and the company becomes insolvent within six months of those payments, that money may be taken back by the liquidator to redistribute amongst other creditors.

Proof of debt

When you find out that one of your debtors has become insolvent, it’s important to lodge your proof of debt form early. Depending on which act – either the Bankruptcy Act (for individuals) or the Corporations Act – the debtor is being liquidated under, there are different forms that are required.

The liquidator (for companies) or Trustee (for individuals) will be able to provide a proof of debt form and provide details on any expected dividends in time, once their processes have been finalised. Make sure you get your forms in early and correctly to maximise your chances of getting a solid return (if one is available at all).

Why Choose ProfColl to recover your debt?

Profcoll is an expert in debt collection and is ready to help you recover bad credit and get that cash back into your business. We have over 20 years experience in the industry, with a team of expert account managers. When you enquire with Profcoll, you can trust we’ll collect your debt professionally and discreetly. We know sometimes bad debt comes from regular customers, so we know how to handle debt collection professionally.

You may think, is a debt collection service worth it? Well, at Profcoll we don’t get paid unless you do. You can enquire free of charge and we’ll do our best to turn bad debt into cashflow in your business.

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