Is Your Debt Actually Able to be Recovered?

debt collection paperwork

Running a business is no mean feat. You’ve got to be across each department, process, and strategy. Even with the right staff in place, a great product or service on offer, and a great outlook for the future, you can still run into hurdles along the way.

One of the most frustrating hurdles you’ll come across is the accounts side of things – more specifically, whether your customers and clients are paying you.

When it comes to running a business, there will always be debts, it’s natural. Debts and credit allow you and your customers to buy the goods that you need, and good debt means you can maintain cash flow and the business itself.

However, there will come a time for every business owner where they come across a client who has not or is unable to pay their bill, which can leave you figuring out how you can possibly recover this debt.


Debt recovery in your business

Knock on wood that you never get stuck in a situation where you are left chasing debts. However, even if you think it will never happen to you, you should still have a process in place in your accounts receivable side of the business to first, help you avoid getting in a situation where you need to recover a debt from a delinquent customer, and also a process for how you plan to chase up outstanding invoices and debts.

Debt collection is a time consuming and frustrating aspect for any business, no matter its size. It can also use up precious resources in your business that could be better used elsewhere, including your own time.

That’s why many people consider hiring a debt collection agency, as they tend to have resources and tools that many businesses don’t have access to and can save you a lot of time and money. You can learn more about why you should consider outsourcing your debt recovery efforts here.

When it comes to debt collection in your business, it’s important to know the ins and outs and your rights when it comes to recovering your debts. This can help you understand what the likelihood is that your debt can be recovered.


Can my debt be recovered?

If you run a business or are a business owner, there are some questions you can ask to determine whether your debts are able to be recovered. These include:

Recovering Your Debt in Time What is the Statute of Limitations in Australia

1.      How old is the debt?

Did you know that there is a limit on how long you can chase a debt for? If there has been no acknowledgement or action taken on the debt for a certain amount of time, the debt can be written off.

In most Australian states, with the exception of the Northern Territory, this time limit is 6 years (it’s 3 years in the Northern Territory).

So, for 6 years the creditor can attempt to recover the debt.  This 6-year period is from the date when any of the following occurred:

  • The date the debt was due and payable;
  • The last date that a payment towards the debt was made; or
  • The date that the person who owes the debt (debtor) acknowledges in writing that they owe the debt.

Once this time period passes, the debt will become statute barred which means that you (the creditor) will have no legal claims to be able to recover that debt.

An exception to this is if court action related to the collection of this debt has started within that six-year period, the time period (six years) to collect that debt will be restarted from this time. However, if six years passes again, then the debt will be statute barred and will not be able to be recovered.

It’s highly important that you commence your debt recovery efforts sooner rather than later.


2.      Has your debtor become insolvent?

When a person or business becomes insolvent, it means that they are unable to pay their debts.  It can happen for a wide variety of reasons and can end up with the company and/or their assets being liquidated in an attempt to pay the people that they have outstanding debts owed to.

While insolvency can throw a bit of a spanner in the works when it comes to debt collection, it doesn’t make it impossible.

You can lodge a proof of debt form, which may differ depending on the circumstances of the insolvency, however, once you lodge the form, as part of the liquidation process, the trustee or liquidator will be able to give you an indication as to the expected outcome of the liquidation.

While you can’t necessarily stop any of your clients or customers from becoming insolvent, it’s a good idea to regularly stay in touch with your customers so you may be able to get an indication that they are struggling to pay their bills.


3.      Are you able to find your debtor?

This is one of the most common problems when it comes to debt collection efforts. Your debtor seemingly falls off the face of the planet.

As part of your business’s process, you should attempt to keep clear and accurate records for all customers, especially their contact details. They may not notify you of any address changes – especially if they are a bit dodgy – but perhaps part of your process could be to contact customers regularly for feedback. That way, if you struggle to get in touch with someone in particular, this might be a sign that they have moved or changed phone numbers.

Now, not all people who change their phone numbers or addresses and who do not notify you are trying to pull a swifty on you, because as well all know, it can be difficult to capture everyone when we make these significant changes, but it is something to keep an eye out for.

If you are unable to contact your debtor, this is where a debt collection agency may be able to help. They have access to many different resources and a lot of experiences to be able to tackle any trick in the book.

Once again, if you start finding it difficult to get in touch with a debtor, it’s better to act fast.

Red Flags to Watch Out For When a Customer Can't Pay Off Debt


What should you do if you have a debt that needs to be recovered?

You can either put in the hard yards and attempt to recover your debts yourself – we’ve got some tips for that here – or you can enlist the help of a professional in the field, like us here at JMA Credit Control.

We have decades of experience in the collection of debts for small and medium sized businesses in various industries. If you’re not sure whether a debt collection service is right for you, you can always give us a call and discuss your options.


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