Debt collectors at the ATO told to ease up – what does this mean for me?

In an interesting lesson for the debt collection industry, a consultant’s report to the Australian Taxation Office has found that the ATO was pushing too hard in its debt collection efforts with the result that the costs of enforcing debts was outstripping the amounts which were being recovered. At the ATO, this has meant that debt collection is more likely to accept partial compliance rather than insisting on total compliance which it has done in the past. This is indicative of a standard pattern in debt collection practices which is observed where a fanatical drive to see a debt repaid can actually end up costing more than accepting the that partial compliance may actually be acceptable when it comes at less of a compliance cost to the organization or individual which is attempting to enforce the debt. The consultants report also revealed that early intervention in the debt collection process was a significant factor in contributing to a reduced number of bad debts owing. This is because the more a debt becomes completely unmanageable, the less likely that it is that the debt will be paid. The tax office ought to know about these things – for the first time this year it collected more than $100 billion in debt from Tax payers. The report found that the ATO recovered outstanding tax through “early collection” resulted in reduced average debt by $9100, or 26 per cent, after three months, while “firmer action” reduced the average debt by $34,800, or 35 per cent, after three months. The report stated that if its recommendations were implemented, the consultants expected to generate $210 million to $297m in additional debt collected.

This report has interesting implications for the debt collection industry because it indicates that there can be a more efficient approach to the collection of debt than insisting on total compliance immediately. Other types of creditors such as banks, insurance companies and other statutory bodies may seek to learn from these findings of the ATO’s report by using softer approaches in debt collection at an earlier stage of the debt collection process. The debt collection letter on this site is a perfect example of the softer early intervention methods of the debt collection process being used to establish more effective debt collection processes.