There’s a moment every business owner knows all too well, the invoice that’s been stuck in limbo for weeks, with follow-up emails ignored and the decision to take things to the next level constantly pushed to next week. The trouble is, what looks like patience is in reality money slipping through our fingers, and most of the time, by the time we work out how much we’ve lost, it’s far too late to recover.
Why Waiting Makes It Worse?
There is some logic to holding off, preserving a long-standing relationship with a client feels like a risk worth taking. Credit teams usually manage to sort these accounts out eventually, and nobody wants to be the one to make a loyal customer feel pushed into a corner. The problem is that the people who get away with doing nothing have no reason to change their ways. Debtors who get their way learn that delaying payment has no costs, and a bit of bad behaviour can quickly become a nasty habit. What was once a recoverable debt at 60 days can suddenly become a real challenge after 6 months. And the older a corporate debt collection account gets, the fewer options you have for sorting it legally or practically.
Corporate Debt Plays by Different Rules
Before you decide to get in some recovery experts, it’s worth understanding one key thing about corporate debt. The rules that apply to business debtors are different from the ones that apply to personal or consumer debt. This means business debtors have fewer protections under the law, which means the options available to creditors are a lot more flexible, timelines can move a lot faster and you’ll often be dealing with stuff like company directors, registered guarantors and corporate entities which adds in all sorts of extra complexities that rarely come up in consumer debt collections.
The ACCC & ASIC have jointly published a Debt Collection Guideline that sets out the rights and responsibilities for creditors and debt collectors. To do this right you need to have a good grasp of where business-to-business debt fits into all that and how it differs from consumer credit. Doing your homework like that is the foundation for taking action rather than just making stuff up as you go along.
What Professional Recovery Actually Looks Like?
Before an account is referred to a specialist collections agency, the initial procedure does not involve calling the debtor. The collection procedure begins with an investigation of the commercial relationship in terms of the contract or supply agreement and invoices and previous correspondence showing the delivery of products or services. This forms the basis of the entire collection strategy. Some cases are resolved with a professional demand letter. Some require negotiations, payment plans, or escalations for tribunals or small claims courts.
For new customers who seek a recovery agency’s assistance, there is one expectation that could be set from the outset. An honest agency will have a real-time record of what has been done, what was attempted, and the response received from the debtor. It is not something exclusive to high-value accounts. It is just a minimum requirement for transparency in the collection process.
The Scenarios That Complicate Business Debt Recovery
But not all business debt disputes get settled easily, and there are a few situations that arise frequently enough to need specific consideration:
- Dispute situations where the debtor has raised a counterclaim during the recovery process, and it needs to be determined if this is legitimate or not.
- Debtors that have undertaken official restructuring plans in accordance with the provisions of the Corporations Act, which alters the whole recovery process.
- Guaranteed debts by the directors where the company has since been deregistered.
- Debtors operating across more than one state of Australia, or even in New Zealand, for which enforcement takes place based on different jurisdictions.
All of these require different methods, and asking the agencies about this beforehand will make sense when employing the agency’s services.
What Rising Business Financial Pressure Means for Creditors?
The Australian Taxation Office has been putting increasing pressure on businesses with regard to the payment of their outstanding taxes, with many defaults among small and medium-sized enterprises at higher rates. This pressure will directly affect the payment habits downstream. A financially troubled business will start making slow payments to its creditors as well. What this means is that an organisation with reliable payment
behaviour of settling invoices in thirty days eighteen months ago could now be in ninety days with no indication of improvement anytime soon.
Revising the adverse credit listing as part of the overall debt recovery process is a must. It is not a luxury; it is an integral part of the complete resolution process.
Why Trading Terms Matter as Much as the Recovery?
The recovery does not take place in isolation. The effectiveness of the trading terms of the company, the credit application process and the documentation of the invoices determine the legal options available to deal with debtors not willing to pay. The agency will work with limited tools in case the credit application and invoices are not properly signed. Organisations that efficiently recover commercial debts have usually designed their credit process with recovery in mind right from the beginning.
