Debt collection is a process initiated when customers fail to settle their unpaid bills within the stipulated due date.
When you have a costumer that has not paid for your service or product after due date, you can resend the invoice or you can start a debt-collection. The process of debt collection involves the retrieval of outstanding amounts by either the original seller or a designated debt collection agency.
Self-collection occurs when companies manage the debt recovery process internally. This method mirrors the workings of a debt collection agency but typically involves lower interest rates and fewer payment incentives. On the other hand, opting for a debt collection agency allows companies to delegate the collection process, saving valuable time in recouping outstanding funds. Many companies prefer to use a debt collection agency so they do not have to face the customer themselves.
Tips to prevent debt collection
Receiving a debt collection claim is an undesirable situation that can be avoided with strategic measures. Firstly, maintaining a comprehensive financial overview and having a bill payment routine is crucial. This includes keeping track of expenses and promptly settling invoices to prevent them from reaching the debt collection stage. Secondly, ensuring optimal liquidity for the company is very important. You want your company to have good liquidity so you know you are able to pay your bills and invest in new projects. A well-structured budget can save you if you have unforeseen expenses.
In addition, it is vital to have a good structure and overview to ensure that your business does not have to send invoices to debt collection. When you have sent a product or conducted a service for your customer, make sure you send them an invoice right away. Studies show that the longer you wait before you send the invoice, the higher the possibility of not receiving payment.
These tips are also great not only for businesses, but also for individuals. Keeping a tight grip on impending bills, maintaining a buffer account, and planning purchases within one’s means can help prevent the initiation of a debt collection case. Similar to companies, individuals failing to resolve a debt collection claim may incur a payment remark, affecting their creditworthiness and potential access to credit and loans.
Legal framework
The law regulating debt collection in Australia is primarily governed by the Australian Consumer Law (ACL), which is enforced by the Australian Competition and Consumer Commission (ACCC). An unpaid invoice does not go straight to debt collection. You can receive reminder fees and debt collection notices before it reaches the point where you receive a debt collection claim.