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Payment Defaults: The Provocative Tool That Works

Did you know that lodging a payment default is a powerful, provocative tool to assist with debt collection?

Often, when people hear the term, payment defaults, they think of it as a much more complicated process than what it needs to be. However, it is a simple tool that can help you get paid, even after you have written off the debt.

What is a payment default and how does it work?

A payment default is a notification on a credit report flagging a debt that has not been paid. Once a default is lodged, it can affect a company’s credit score for up to 5 years.  If a default is paid, its status can be updated.

While lodging a default can help you get an overdue debt paid, it also assists other businesses to avoid their own bad debt.  Once a default has been registered, anyone else dealing with the debtor will receive an email alert that the default has been lodged. Further, anyone that runs a credit report on that company will see the default present on the credit file. In a recent survey, 91% of CreditorWatch customers said that they would not engage with a company that had a default lodged by another customer.

Just warning debtors about payment defaults can sometimes be enough

Encouraging a customer to pay up by issuing a final notice letter which threatens a default is often enough to prompt payment.  Informing customers of how a payment default can affect them has been proven to encourage them to pay up or make contact to organise a payment plan. A case study on Ward Packaging highlighted that a payment default could be used as a powerful collection tool. In their final notice to debtors, Ward Packaging included a screen shot of the client’s credit score in the letter and how that score would be affected for 5 years once a default was lodged. As a result, they had a 50% payment response.

It’s never too late to lodge a payment default

You can still lodge defaults against debt that has been written off. Earlier this year, a construction company who uses CreditorWatch uploaded defaults against their bad debt write-offs from the previous three years.  Last week they were contacted by one of the debtors who settled a debt in order to clear their credit file. The amount exceeded $50,000!

The stats don’t lie

Did you know that over 50% of entities with a default go into administration/liquidation within 18 months. Failure to pay creditors is a major red sign that something is wrong.

“Struggling businesses are more likely to default on less critical suppliers and SMEs six months prior to them defaulting on a corporate or large business who is equipped with the resources to take legal action against them,“ comments CreditorWatch Managing Director, Patrick Coghlan.

Power of the default

Our statistics show that the time it takes for a default to be settled or paid has decreased significantly over the years.

Financial Year Average Days
2015 210
2016 124
2017 72
2018 (Q1) 21.9

 

For the first quarter of the 2018 financial year the average time from a default being registered to payment being received was 21.9 days.

28% of defaults lodged in October have already been paid by the debtors.

“If a creditor is in the position of providing credit to an entity that has defaulted on payments with another supplier, they should be concerned and trade with caution. It doesn’t necessarily mean a business should cease trading but be encouraged to reassess their accounts on a regular basis and monitor all customers for important changes that increase the risk of bad debt,” adds CreditorWatch founder Colin Porter.

It’s important for creditors to know that they have options if they do not get paid and if anything, lodging defaults alerts the CreditorWatch community to be aware that the debtor does not pay.

It’s a simple process

Lodging a payment default is not a difficult process. If you are not getting paid or have written off debt, it doesn’t hurt to give payment defaults a go. The overall goal of a payment default is not to be malicious or spiteful. Instead, it is a tool used to get two parties talking to each other in order to settle a debt and the statistics and feedback from clients show that it works.

You can also watch the webinar for more insights: Diving into Defaults.

More articles like this: CreditorWatch Launches New Feature to Simplify Registering Defaults