1) Allowed a friend to move in and gave them a rent holiday.

This is a very common scenario where in order to help out a friend, you choose to allow to live in your house as a tenant and give them a rent holiday. However, this can start to become seriously problematic when having lived in your house for three months you discover that they are still unwilling to pay any rent and that they now owe you $5,000.00 in unpaid rent. In a situation like this you may have to look at getting a debt collector involved to recover this money from them.

2) Lent a family member a car.

You might have lent a car to your daughter while she was pregnant and during this time she uses the car so that she can have transport and get to the hospital later on. During the pregnancy, your daughter’s boyfriend starts using the car and comes to think of it as belonging to him. He then refuses to give it back saying that it was a gift from you to your daughter and his family. The car is worth $20,000.00 and you now no longer have any access to it. You could send a debt collection letter appropriately drafted by a lawyer in order to look at getting this property back.

3) Lent a teenager a credit card

You may have lent your teenager a credit card which they used to enter into a mobile phone contract. You suddenly discover a $2,000.00 bill next month for data downloads on the mobile phone. How are you going to recover this money?

All of these situations require tact and delicacy, but the tools of debt collection and recovery will be the same. In particular, a debt collection letter would be appropriate in all of these situations.

In the past few years, the impact of the Global financial crisis has been immense on the economy in general and the amount of unpaid debt which is burdening businesses. However, in the last year or so, the deep catharsis and recession of the global financial crisis has abated and there has been the emergence of some ‘green shoots’ in the global economy. For instance, the global shipping index went up recently, as have some global commodity prices. There have been some encouraging employment figures, particularly from USA in recent months and Australia in particular has shown a remarkable resilience to the global downturn. If your business had accumulated long term outstanding debts from the global financial crisis from people who simply could no longer afford to pay their bills because of the impact of the global financial crisis, it is now possible that they can no longer rely on this as an excuse because the economic growth which underpins the usually solidity and robustness of the Australian Economy is returning and meaning that many of the debts which debtors would have been unable to pay start to become payable as incomes return to businesses and people become more capable of repaying debts.

This means that debt collection in a period of economic recovery is likely to be more successful. There are likely to be far less unrecoverable debts as the economy continues to recover. This means that new recovery action which is launched is likely to be more successful and recovery action that was instituted but left dormant or abandoned could now be enlivened to recover money that is owed to you because the economic recovery has begun to influence the capacity of businesses to repay debt and recapitalise in to a strong position of growth.

- It allows you to concentrate on your core business rather than being diverted by bad debts all the time.
- It saves you the difficulty of bringing up debt collection matters with your customers personally
- It saves on the in-house salaries of accounts receivable staff
- If there is a commission system in place, the agency has a high incentive to recover the debt for you
- You do need to be aware of the laws and regulations about debt collection as this is looked after by the agency

So as you can see, there are a number of advantages to hiring an external debt collection agency to undertake the work of collecting debt on your behalf. But once you have decided to hire someone, you will need to know if you are hiring the right one. Some of the things to look for in a debt collection agency might be:

- How long have they been operating as a business?
- Do they have experience with your industry?
- Have they worked with a business of your size?
- Do they work with the debt amounts that you work with?
- What is their overall strategy for debt recovery? Does this fit with your values?
- Can they give client testimonials?
- Do they know the relevant laws and regulations?
- What are their fees? Do they offer a choice of fee structures?

If you analyse your choice of debt collection agency using these points as somewhere to start, you are likely to end up with a choice of agency that fits your business model, goals and structure better than simply selecting one at random. This will mean a more harmonious relationship with your business over the long term and a better outcome for debt collection in the future. If you have a debt collection matter which you would like to discuss with us, please do not hesitate to contact using the contact form to the right.

The meaning of a secured debt is that the debt is tied to the ownership of property by a debtor. If the debtor defaults on the payment of a secured debt, the property or asset which is being used as security can be sold in order to meet the outstanding amount of debt repayments. The most common example of a secured debt is a mortgage which means that if you are unable to repay a debt, the person or legal entity holding the mortgage can sell the security asset in order to realise the value of the loan repayments. Sometimes, debt security will be given over household items like cars, boats, furniture or even simple personal possessions.

What are some examples of types of security?

Some of the types of security which can be offered in relation to debts like this are fixed and/or floating charges over the assets of a company which are normally lodged at the Australian Securities and Investments Commission and naturally mortgages which are lodged at the department of land and property information in New South Wales. Also, sometimes it is possible to offer security in the form of a car by allowing a registered security interest to appear on the title to the vehicle.

What is unsecured debt?

Unsecured debt is a loan where in the event of repayment failure, there is no recourse for the lender to repossess any assets or have any form of loan security. Lenders who take on the practice of giving unsecured loans generally do so at much higher levels of risk on the transaction. They normally charge this risk to the end consumer in the form of much higher interest rates on the loan. A good example of an unsecured debt is the debt which we accumulate on credit cards. If you fail to repay your credit card debt, there is no security property against which the debt can be repaid through the sale of an asset in a legal sense.

What is the difference between secured and unsecured debt collection?

The difference between secured and unsecured debt collection is that if you are the creditor in relation to a debt that is secured, there will be an asset which can be sold in order to realise the value of the debt. So, if you have loaned some money to someone and given them security over the property in the form of a mortgage you can sell the house under the mortgagee power of sale to any buyer. In this situation it is not necessary to go through the standard process of debt collection because the property can be sold under the mortgagee’s power of sale.

What about the preference between secured and unsecured creditors?

When a company goes into liquidation or an individual goes bankrupt, there will often be a long line of creditors who are owed money and each seek a claim in relation to the assets of the individual or the company which is left. Because the debts will exceed the amount of the assets of the legal entity, it will mean that not everyone can be paid and secured creditors will be able to establish their position with a claim over the assets to a much greater degree than the unsecured creditors who are owed money by the entity which is being liquidated or the person who is being made bankrupt.

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.

This is obviously unacceptable and debt collection agencies tend to develop methods which adapt to the attitudes of debtors during tough economic times. There may tend to be much more bankruptcy in relation to debt because people will actually be unable to pay their debts, this is of great concern if you’re in small business. If your clients who also small businesses are unable to pay their debts there could be a snowball effect were because one non-payment to one of your clients occurs they will no longer be able to pay you and this is how the debt crisis spreads and reduces the overall confidence in the economy that people are involved in.

Debt collection of economic times is also conducted much more effectively by highly experienced a collection agency who were seen the same patterns before that relate to the debt or patterns of behaviour in tough economic times and the way that excuses can be used for non-payment as part of the more general social and economic malaise which is affecting society at present but has no relevance to the fact that they haven’t paid you.

Many debt collection agencies work off commission, often between 30 and 40% of the total recovery. in cases where there is a risk of non recovery, this billing structure removes the risk element for you the client. however if your debt collection matter is so simple clear and straightforward that there can be no question that the debtor will pay, it may actually end up being more expensive to get a debt collection agency on commission rather than on a fixed fee basis. a good debt collection agency will be aware of these issues are you as a client and will tailor their service to your needs so that you are not over serviced and not under serviced. Although you cannot expect a debt collection agency to work for free, there is reasonableness involved in all considerations of the fee amounts of debt collection agencies are allowed to charge. Generally, the fees that the debt collection agency is charging should never go above what the total amount of the debt is. Although this may seem obvious, it is something that is sometimes overlooked in the heat of the moment when trying to recover a debt. There is also the point at which a debt collection agency will refer the matter to a lawyer. A lawyer is a professional who charges on an hourly basis and is less subject to the considerations of the payback system of payment. However a good debt collection agency will know when it is appropriate to refer a matter to a lawyer and when this is not necessary. These are some of the signs that a good debt collection agency is at work.

What can you do in this situation?

Although personal debts are often quite sensitive, it is often the case that if the matter is referred to a debt collection agency or to a debt collection lawyer, when the debt is between two people who know each other very well or there is an issue of reputation at stake than the likelihood that they will pay as a result of the referral to an external independent third-party is extremely high. For this reason, we recommend referring a matter like this to a debt collection agency to see if the amount can be recovered quickly and easily.

Some debt collection agencies believe that the only way to solve a debt collection problem is to make the threats more and more scary until the debtor is so scared that they pay simply of out fear of the consequences of non-payment. Although it is true that there are some consequences which can result from not paying debt back, harassing and intimidating tactics are not necessary successful in recovering debt because it means that the debtor has no respect for the notion that they need to pay the debt back and this means that they are less likely to pay back on those grounds. If you have a debt collector who actually has a sympathetic disposition, in some cases, if they point out that the non-payment of the debt means that the employees at the company which is owed money will need to be laid off or that there is a useful purpose which means that there is a moral basis for paying the debt, it will actually be more likely that the debtor will be convinced to pay through moral persuasion rather than the threat of sanctions. Although naturally, there are some debtors who are simply recalcitrant and refuse to pay which means that the sanctions based method must still be allowed to be in use.

Obviously, you will also want to ask your collection company about the fees that they will charge. If they are going to charge a commission, generally the industry standard is between 30% and 40% of the total amount recovered. However, it can also sometimes work out cheaper for you if they charge by the hour for debt collection because they may recover the money without incurring the same level of cost on the money that was originally owed to you. You may also want to ask what the level of experience of the staff that will be working on your matter is and if they are highly experienced or only junior staff in relation to this area of work. Finally, another consideration might be if the debt collection service has a particular expertise in your industry. There are, for example, some debt collection companies which specialize in medical debt collection and they are particularly suited to assisting doctors in the recovery of debt.