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5 mins read

How to deal with debt collectors

What is a debt collector? 

When a business, bank, credit union or lender have exhausted their in-house options to recover money owed, they turn to a debt collection service for debt recovery in Australia. These agencies and providers follow up on late or non-paying debtors, either for a fee to the creditor or after buying the remainder of the debt outright. 

Because of this cost to the creditor, it is recommended that businesses leverage the powerful resources of CreditorWatch Collect to expedite debt recovery before debt collectors get involved. 

What do debt collectors do? 

Debt collection service providers communicate with debtors and attempt to recoup owed money by offering payment plan services and sending letters of demand (or a collection of debt letters).  

If these levers are ineffective, a debt collector may choose to follow up on the debt in court. Debt collectors in Australia must contact debtors according to strict guidelines outlined by the Australian Competition and Consumer Commission (ACCC).  

Per the ACCC website, “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 debt collection guidelines also apply to contact with a family member, employer or other related party. The ACCC accepts reports and enquiries about debt collectors and educates the general population, but they do not involve themselves in individual debt disputes. If you believe you have been subjected to illegal conduct – consult professional legal advice.  

When might you deal with a debt collector?

If a creditor (business, bank, lender etc.) has attempted to contact you multiple times about an overdue invoice or debt owed, and you fail to pay or respond, the chance of a debt collector’s involvement increases. Further, a payment default will likely be registered for you or your business, negatively affecting your credit scores and prospects of securing future loans or credit. 

Typically, a creditor will enlist the services of a debt collector once a debt is more than 90-120 days past due. Before this, creditors will try to contact a debtor using in-house collections tools, such as automated prompts from CreditorWatch Collect 

If the creditor feels they lack adequate resources or time to chase the debt further, calling in a debt collector is a last resort before they either pursue court action or write the debt off as uncollectible.  

How do debt collectors find you? 

The creditor holding the overdue account can often provide debt collectors with contact details for the debtor, such as those provided in an application or on a contract. Debt collectors can access further data and contact information using powerful search tools, including CreditorWatch’s company search portal 

If a debt collector cannot reach a debtor via the traditional phone, mail or email, a court may allow them to use a ‘substituted service’. For example, they could serve legal documents to a previously held address and text the owing party to notify them.  

Can you ignore debt collectors? 

No, it is not recommended that you ignore debt collectors. There’s no benefit to wondering: ‘When do debt collectors give up?’ and if you can outlast or beat them. Each state has a statute of limitations on debt in Australia (six years in NSW, three in the NT, etc.), although court actions can remain enforceable after this period. Ignoring debt collectors increases the likelihood of: 

  • Court action and enforcement against you 
  • Registration of a payment default against you/your business 
  • Deterioration in your credit history and scores 
  • Declarations of bankruptcy or company insolvency 
  • The sale of assets and garnishing of wages to compensate creditors 
  • Travel restrictions, directorship bans and ASIC notices 

Can you negotiate with debt collectors? 

According to ASIC’s MoneySmart website, a debt collector must consider a request for a payment plan if you’re experiencing financial hardship. They may request supporting documentation to confirm your predicament and assess future options.  

It may be worth contacting a financial advisor for negotiation with the debt collection agency on your behalf. If the debt collector agrees that you cannot service current debt obligations, they may offer one of the following options: 

  • Smaller payments over a more extended period 
  • Closure of the debt with part-payment 
  • Waiver of the debt if you are assessed as unlikely to be able to pay now or in future. 

What should you do if you think you do not owe the debt?

If you are being contacted for a debt you believe isn’t yours, ask the debt collector for proof of the contract or agreement with you nominated as the debtor. Consult legal advice if you remain unsure of your obligations to pay that debt. Public legal services are available from organisations like LegalAid NSW that can provide support.   

What should you do when dealing with debt collectors – step-by-step 

  • Request and collect all relevant documents 

If you’re wondering how to deal with debt collectors, you first need to confirm that you (or your business) are the one who owes the debt, who you owe the debt to, and when the money was/is due. If you do not already have this information on file, you can request these details from the creditor or debt collector.  

  • Work out your budget 

You should thoroughly assess your finances to determine how much you can afford to pay, how frequently, and whether a payment plan is required. If you request a payment plan from a debt collector, they will likely ask for details of your financial hardship, so you must be able to prove this – i.e. through evidence of lower income or a recent redundancy. If you believe that the rejection of a payment plan request is unreasonable based on your view of the numbers, you can file a complaint 

  • Communicate openly, honestly and regularly 

As noted previously, there can be severe consequences for ignoring debt collectors and refusing to pay a debt. You should be honest about your financial situation and request a payment plan if you’re experiencing hardship. Communicating in good faith may decrease the likelihood of things escalating to court. However, if you believe you are the victim of unlawful conduct by a debt collector, consult legal advice immediately.  

  • Get everything confirmed in writing 

If you part-pay some of the debt, negotiate a payment plan, or the debt collector agrees to waive the remainder: ensure you confirm this new information in writing. Doing so means that if circumstances change and legal action is threatened – you have proof of the agreements made.  

  • Try to stick to the agreed plan 

The best way to avoid court actions and enforcement is to stick to the agreed-upon payment plan, pay off the remainder of the debt and return to business as usual.  

Prioritise collections from risky trading partners with CreditorWatch Collect 

Dealing with debt collectors can be a hassle for Australian businesses, straining business relationships, drawing out the compensation process and sometimes resulting in protracted legal battles and fees. The best option is to prioritise collections and recover the owed funds before it ever reaches that point. 

The customisable, automatable templates and resources from CreditorWatch Collect make that possible. We have branded letters suiting every communication need, including Welcome Letters, 30, 60, and 90-day reminders, final notices, and more. Complete with our powerful third-party endorsement, we’ve helped clients improve days-sales-outstanding by up to 53%.  

You’ll also be able to leverage the debtor insights we provide to analyse payment behaviour from clients and prioritise more risky trading partners. We offer the ability to view average days to payment, the split of current debtors, the time overdue, and other valuable information. With the power of our collections resources, you can unlock that cash flow from Accounts Receivables and get it working for your business without involving debt collectors.  

Secure your revenue and unleash your potential. Speak to our expert team today.  

cash flow collection teams debt collection debt collection tools debtor management debtors
Sarah Oliver
Marketing Coordinator
Sarah joined the CreditorWatch marketing team in May 2023, bringing with her a strong passion for helping businesses and individuals navigate the intricate world of credit through strategic marketing and effective communication channels.
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