Avoiding Mistakes in Debt Collection

There are number of pressures on business, particularly small business at the moment which are turning many small businesses into debt collectors. Increasing default rates, lowered revenues, asset devaluations and write-downs as well as a record rate of personal and corporate bankruptcy. Being a debt collector is not easy if you have no training or background in this area.

There are number a number of skills which are used by small businesses to prevent outstanding debts becoming a large problem. Many businesses now know how to deal with a bankrupt client and are becoming more adept at taking security and recovering collateral where there is a risk like this involved. However, the laws relating to commercial debt recovery are still very complicated and it can be very costly to make even a small mistake.

One of these traps is collecting personal and private information about customers which the customer can then object to on the basis of privacy law. In Australia, the national privacy principles apply generally to businesses over the legislative threshold. If a business collects more information than is necessary or beyond the scope of their ambit under the law, a complaint can be filed with the Commonwealth Privacy Commissioner.

Another trap is in the Bankrupcty law. When a company or an individual goes bankrupt, you are required to lodge a formal proof of debt with the liquidator or the bankruptcy trustee if the debtor is an individual. These proofs of debt need to be in the standard from from the Bankrupcty Act or the Corporations Act 20011 (Cth).

Filing a proof of claim generally requires completing a standard form and attaching any relevant documentation evidencing or supporting the claim (such as a credit application). Many businesses, particularly smaller businesses with smaller claims, will file their own proofs of claim rather than turn the matter over to an attorney.

By extending credit, businesses are effectinvely making loans to customers. It is unavoidable that customers will not repay these ‘loans’. However, even innocent violations of debt collection laws can mean that this is fatal to a claim of recovery and can even result in Business becomin liable for the debt rather than the reverse. For this reason, professional advice should always be sought.

Debt Collection Letter Resources