What Happens to Debt After Seven Years?

What Happens to Debt After Seven Years

In Australia there are laws that you might not be aware of when it comes to debts and debt collection. It isn’t a simple case of demanding a client who has an unpaid invoice to settle their balance. Here we discuss what happens to debt after a certain amount of time.

Being Statute Barred

When a debt is statute-barred, in essence it simply means that no one can take legal action against you and force you to pay anything. A debt is statute-barred when:

  • If you haven’t made any payment in the last seven years (however it also depends where you’re from)
  • There is no written document stating that you have a debt
  • No one has taken any legal action against you with regards to the debt

Debts are pretty tricky in Australia in a sense that not all function or behave the same way. Some debts take shorter or longer than others to be statute-barred, and where you live could also play a big factor. For example, in the Northern Territories, a debt becomes statute-barred in just three years.

Avoiding Debt

As a small business owner, the exchange of payment for goods or services is your bread and butter. Each contract or transaction that transpires helps the business grow and allows cash flow to be more manageable or fluid.

As much as possible, lessen the chances of clients being indebted to you by practising the following steps:

  • Doing a background search (otherwise known as a “credit check”)
  • Drawing a contract
  • Making your Terms and Conditions clear
  • Having an efficient collection process

These, among other things, can be very beneficial for you and your business in the long run.

What Do I Do When I Have a Client Who Has Unpaid Dues?

You might have realised a little too late that debts can become a hassle. What can you do when you have an invoice that’s been left in the dust?

For starters, when there has been an unpaid invoice, approach the client right away. Reminding them as soon as possible will prevent any future issues or disputes. You may state in your contract that after a certain period of time (usually 10-15 days) of receiving the invoice, a late fee will be added over and above the current invoice.

Contact your client through email first. When this goes unnoticed, try contacting someone else in the company. You might need to go directly to the accounting department, if they have one. If this is a big transaction that involves a hefty amount of money, and the company is within your city or vicinity, a personal visit will be acceptable.

If time has lapsed since the last payment was made, check your records how long ago this was. You can easily dispute and still go after any invoice or debt owed to you.

What Happens When 7 Years Has Passed? Can I Still Go After the Debt?

It really depends on the amount. If we are talking about a sizable account, then pursuing a debt might still be worthwhile. Speak to professionals, such as JMA Credit Control, before doing so.

There are cases when a client would commit to paying off a debt and would do so in writing. Such an admission can be presented to court and act as a legal document when you end taking any legal action. There are also instances when the seven-year statute limitation does not apply. Such is the case in real estate when a mortgage is involved.

The bottomline is that it is a case by case basis and not all debts are treated equally.

Get a Debt Collection Agency

When all else fails and you have done everything to try to minimise debt, asking for the assistance of a debt collection agency is your next best bet. In a nutshell, here are reasons why a debt collection agency like JMA Credit Control can be beneficial in your business:

  • Removes the responsibility of going after debts out of your hands
  • Our approach is diplomatic and does not affect your business relationship with a client
  • For complicated cases our legal team can give the best advice and approach regarding the matter

Contact JMA Credit Control for a more in depth look into how we can be your partner in debt management and help maximise current cash flow into its fullest potential. Our 50 years of service in the industry is a hallmark of customer satisfaction and our commitment to assisting small businesses like yours get back on their feet.

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