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Debt collection in Australia – How does it work?

Jar of coins with a typed label on top with the word debt.

What is debt collection? 

Debt collection describes recovering overdue funds owed to a creditor, administered by a third party for a fee. If a business or individual considers themselves unable to recoup money owed after taking steps to collect it – they may decide to contract the services of a debt collector. 

What are debt collectors? 

Parties that owe money are known as debtors. Debtors sometimes default on money owed, meaning they fail to meet payment obligations on time or fully. The owed party, or creditor, has actions they can first take to collect the owed money without involving a third party. These can include: 

  • Informal negotiations 
  • Reminder notices 
  • Letters of demand 

If these measures fail, the creditor may enlist the services of a debt collection agency for active debt recovery. Debt collectors follow up on the money owed for debt collection fees. Engaging this third party can signal to the debtor that the situation may get more serious, potentially involving court action if the outstanding debts remain unpaid. 

When might you end up dealing with a debt collection service? 

Failure to pay a balance, or respond to communication requesting payment, may result in the involvement of debt collections Australia service providers. Generally, the creditor will first attempt to reach out to the debtor prior to this, as they seek to avoid paying the fee to a debt collector, jeopardising relationships or participating in a drawn-out collections process. Resources available from CreditorWatch Collect have proven to reduce the Days-Sales-Outstanding for Australian businesses by up to 53%.   

However, if these attempts fail to result in payment, the creditor may see no choice but to involve a debt collector. Debt collectors allow the creditor to outsource the collections process to a service provider equipped with the tools and experience to follow up on the debt.  

What is the process of debt collection in Australia? 

  1. Confirm the details of the debtor: Any creditor must ensure that debtor details are absolutely correct. Otherwise, the debt collector may pursue the wrong party. Confirm any names and addresses for individuals and the registered Australian Business Number (ABN) or Australian Company Number (ACN) for businesses. Use the ABN Lookup Service or Organisations and Business Names Search to assist you. 
  2. Consult legal counsel: Check with your in-house legal team or trusted legal advisor concerning the appropriate actions. You must avoid any illegal behaviour in the pursuit of the owed funds. Unions or business enterprise offices also provide advice in this area. 
  3. Discuss the type of debt collection you wish to engage in: There are different styles of debt collection offered in Australia by various providers:  
    • Traditional debt collection services: Traditional services usually involve communication with the debtor via ‘letters of demand’ outlining the potential for legal action if the debt remains unpaid. These letters will generally be branded by the collections service provider, highlighting the seriousness to the debtor. If the debtor does not respond to a debt collector’s letter, the collector may contact them over the phone according to ASIC guidelines. Typically, the fee for such service ranges between 5% and 30% of the owed funds.
    • Debt purchasing or buying: You can essentially sell out your stake in a debt, taking payment from the collector and allowing them to keep any further funds recouped from the debtor. You forgo any entitlement to additional compensation on the debt.
    • Online debt recovery services: These providers follow the same format as the traditional collectors, although they communicate and conduct services online. As such, some of these service providers may offer lower fees and shorter turnarounds. However, some creditors may believe that traditional methods of communication are likely to be more successful.   

How does debt collection in Australia work? 

In Australia, debt collection is highly regulated compared to some other countries. The Australian Competition and Consumer Commission (ACCC) has strict guidelines relating to debt collectors’ conduct and the treatment of debtors.  

While the ACCC has a role in reporting malpractice and growing education concerning debt collection, it cannot get involved in individual debt disputes. For those wondering, “when do debt collectors give up?”, legal action may eventually be required if a debt remains unresolved.  

Money owed to the state, such as outstanding Centrelink debt, may be followed up by state debt recovery entities, such as Revenue NSW 

What are debt collection agencies permitted and not permitted to do in Australia? 

According to the ACCC, debtors, and others connected to a debt, “should be treated with fairness, respect and courtesy.” Additionally, a debt collector should “only contact a debtor for a reasonable purpose and only when necessary.” 

To enforce these statements, the ACCC has provided the following on legal compliance for debt collectors:  

Under Australian law, a debt collector must not: 

  • Use physical force 
  • Use coercion 
  • Unduly harass or hassle the debtor 
  • Mislead or deceive the debtor 
  • Take unfair advantage of any vulnerability, disability or similar affecting a debtor. This can amount to unconscionable conduct. 

These laws also apply when contacting anyone connected to a debtor such as a spouse, partner or family member. 

The debt collector must not charge interest, or a fee that isn’t part of the original debt. Additionally, the legal rights to the privacy of personal information relating to debtors must be respected. If a debtor is concerned that privacy laws have been broken, they should report it to the Office of the Australian Information Commissioner. 

Speaking of criminal actions, if you’ve ever wondered if you can go to jail for debt in Australia, rest assured that no person will go to prison for owing money alone, according to Legal Aid NSW. 

When can a debt collector contact a debtor? 

The ACCC regulates and oversees debt collections guidelines pertaining to when a debt collector can contact a debtor and what constitutes an acceptable reason to do so. According to ACCC debt collection guidelines, ‘acceptable’ reasons include: 

  • Relaying important information about the money owed 
  • Making a payment demand 
  • Suggesting a payment plan for the debt 
  • Accurately explaining the potential consequences of the debt if it remains unpaid
  • Following up if a debtor has failed to respond to other communication
  • Investigating if the debtor has changed details such as their address without notifying creditors 
  • The need to inspect, view or recover a security interest, such as a boat. 

To the best of a debt collector’s ability, contact with a debtor must be limited to the following times:

Monday to FridayWeekendsNational public holidays
Contact by telephone

(Maximum 3 phone calls a week or 10 a month)
7:30am to 9:00pm9:00am to 9:00pmNo contact recommended
Face-to-Face contact7:30am to 9:00pm9:00am to 9:00pmNo contact recommended
All workplace contactDebtor's normal working hours if known. Or 9:00am to 5:00pm.No contact recommendedNo contact recommended

Source: ACCC.gov.au 

How to report debt collection misconduct in Australia? 

Debt collection misconduct should be reported directly to the ACCC. It will record the report on file, advise the complainant of their rights under Australian law, and provide any further information they have that may assist.  

That said, the ACCC does not resolve individual complaints. If you wish to take action, seek independent legal advice from a debt collection lawyer or contact organisations such as ​​Legal Aid NSW. You can also request further information from your local state or territory consumer protection agency, such as NSW Fair Trading, or industry ombudsman, such as the Australian Financial Complaints Authority.   

Further, you may be entitled to take your claim to a small claims tribunal, such as the New South Wales Civil and Administrative Tribunal, if you dispute the debt. See here for a comprehensive list of organisations that provide consumer help, per the ACCC.  

Organisations for legal assistance: 

ACT/Canberra

Legal Advice: 

Consumer Law Advice:

New South Wales/Sydney

Northern Territory/Darwin

Queensland/Brisbane

South Australia/Adelaide

Legal Advice: 

Consumer Law Advice:

Tasmania/Hobart

Victoria/Melbourne

Legal Advice: 

Consumer Law Advice:

Western Australia/Perth

Legal Advice: 

Consumer Law Advice:

Prioritise money locked in accounts receivables with CreditorWatch Collect 

For Australian businesses, sometimes the damage is already done before debt collection services get involved. Prioritising collections can mean the difference between paying the bills and going out of business.  

CreditorWatch’s debtor management tools integrate seamlessly with Xero, MYOB and other popular accounting software. Track payment behaviour and identify risky trading partners more efficiently. Streamline your collections process from monitoring debtors through to automated chasing of overdue accounts. 

Leveraging our sophisticated suite of debtor management tools, you can unlock money in you accounts receivable, protect your cash flow and avoid risky debtors. Speak to our expert team today for more information. 

debt collection debt collection process debt collection service
Michael Pollack
Head of Media & Communications
Michael joined CreditorWatch in July 2021. He has more than 20 years’ experience in business journalism, marketing and communications strategy and digital content development. He is passionate about communicating to the business community how CreditorWatch’s product suite can help them grow and protect their companies.
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