How Long Do You Have To Recover Debts?

how-long-do-you-have-to-recover-unpaid-debts

Recovering old debts is an issue that many businesses deal with on a regular basis. But how long do you have to recover your unpaid debts?

How long before debt becomes uncollectible and is written off?

To the letter of the law a creditor has 6 years from the date…

  • on which the debt became due and they didn’t pay; or
  • that they last made a payment; or
  • that they admitted in writing that they owed the debt.

…to recover a debt through the courts.

Now six years is a long time, and obviously no business should wait anywhere near that long to recover their unpaid debts.

In reality the longer a debt remains unpaid the harder and more costly it becomes to recover. Even debts that are just 6 months old have a greatly reduced chance of being recovered in full.

In fact figures show that a debt overdue by one month has a 93.8% chance of being paid. This drops to 74% after 3 months and down to about 27% after 12 months. Read more debt collections stats.

What these figures tell us is that you need to be pro-active and stay on top of ALL your unpaid debts to ensure swift action and recovery.

After all your business needs cash to survive and waiting months to receive payment off bad customers is one of the quickest ways to sink your business.

So how do you recover your debts quickly?

Rapid Recovery Actions:

Before we discus how to recover bad debts, let’s quickly look at the steps you can take to minimise unpaid invoices and protect yourself from customers who don’t pay their bills on time.

Terms Of Trade
The most important step you can take to reduce the amount of unpaid invoices is to set up clear and enforceable terms of trade.

If you are a business that provides credit, or delivers services with invoices due at a later date, professional terms of trade will ensure you are legally protected should there be any disputes about recovering your debt.

Your terms of trade should also include terms that clearly state that the debtor will liable for all costs of recovering an overdue debt.

Get help setting up your terms of trade.

Credit Checks and Trade References
If you will be providing customer credit you should also look into their credit history and gain trade references before entering into a business relationship. Again this will protect your from doing business with companies and people with a history of unpaid bills.

Follow Up Overdue Accounts Immediately

Once an account becomes overdue you must contact the customer immediately to notify them that their account is overdue and that your require immediate payment.

This responsive, polite follow-up will show the customer that you will chase up all debts and is often all that is needed to get paid.

Official “Overdue Account” Letter

If the friendly reminder does not work you will need to make things more official. Sending a letter that follows all the guidelines for debt recovery and provides all relevant evidence of the business transaction is the next step you must take to recover funds.

Engage A Debt Collection Agency

Debt collection agencies specialise in all areas of debt recovery and are often the most convenient and efficient way to recover your unpaid debts.

In many cases the introduction of a professional debt collection company will be enough to persuade the debtor to pay immediately. If they don’t there are a number of steps a recovery agency can take to recover your money without reporting to costly and time-consuming litigation.

Also like JMA Credit Control, some collection agencies offer a NO recovery, NO fee service, so you only pay once they recover your funds. And if you are pro-active and have a professional write up your Terms Of Trade, the debtor will be liable for any fees you paid in recovering the debt.

Don’t Delay

If you have an unpaid debt you must act fast. Each day you wait reduces your chances of recovering the debt and the amount you may be able to recover will be reduced.

To outsource your businesses debt collection duties or to talk to an expert about any current unpaid debts please call 1300 272 164, or contact us here.

 

Written by Richard Thompson

Richard Thompson is the Managing Director and owner of JMA Credit Control and has over 25 years’ of trusted experience. Richard has a wealth of knowledge in Credit Management and Debt Recovery ensuring client’s recovery bad debt quickly and cost effectively.

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