When speaking with our clients the most frequently asked questions we receive is around Australian debt collection guidelines and in particular how debt collection process works. The ACCC in Australia has put together a very thorough guideline for collectors which outlines in detail best practice guidelines for collectors and creditors. We recommend that you use this as a starting place with dealing with collection agencies to ensure that they’re operating accordingly.

It’s important to note that a quality debt collection agency will have a matured and refined process in place that can be tailored to each unique and individual situation. Every business and claim is different and therefore the process acts as a clear path of action for the collection of your debts but also may vary between customers.

Being a debtor is not restricted to an individual, as in business there is also company debt. Many companies’ heavily invest into accountancy and rely on insolvency solutions to prevent debt from being left aside.

The Debt Collection Process

1. Making contact with the Debtor

Making contact with the Debtor is the first step in the debt recovery process and this typically begins with sending letters or calling the debtor directly.

Send debt collection letter

Debt collection letters are a final notice to the debtor notifying that the account is overdue and despite previous reminders the matter will now be referred to a collection agency which may result in legal proceedings.  Here is an example of our debt collection letter which is freely available for you to download.

We refer to the above and advise that despite our previous reminders your account is now well overdue and remains unpaid.

 We therefore advise that unless arrangements are made within 5 days to pay the full amount owing, we will be forced to refer the matter to our collection agency – JMA Credit Control. If legal proceedings are initiated against you this may involve you in further costs and may prejudice your future credit standing.

 If you have any query in relation to the account, please contact us upon receipt of this letter.

As mentioned previously it’s very important when collecting debt that you have your terms of trade in place which clearly outlines the agreement for conducting business between you and the debtor and is agreed and signed before business takes place.

Phone call to debtor

The ACCC details that it may be necessary and reasonable for you or a collection agency to contact a debtor to:

• provide information to the debtor about their account
• make a demand for payment
• offer to work with the debtor to reach a flexible repayment arrangement
• accurately explain the consequences of non-payment, including any legal remedies available to the collector/creditor, and any service restrictions that may apply in the case of utilities (for example, disconnection of electricity or gas supply or restriction of water supply)
• make arrangements for repayment of a debt
• put a settlement proposal or alternative payment arrangement to the debtor
• review existing arrangements after an agreed period
• ascertain why earlier attempts to contact the debtor have not been responded to within a reasonable period, if this is the case
• ascertain why an agreed repayment arrangement has not been complied with, if this is the case
• investigate whether the debtor has changed their residential location without informing you, when there are grounds for believing this has occurred
• sight, inspect or recover a security interest
• or for other similar purposes.

The reasonable hours of contact can typically be between the hours of 7am and 9pm, slightly later for weekends, and weekdays and weekends are both acceptable. It most cases a collector will contact you through standard Australia business hours.

Record keeping

Throughout each stage records should be documented and maintained to ensure that each step of the collection process has been agreed and clear details are set on how the debtor will repay the amount.

2. Issue of complaint

The aim is always to avoid any form of court action and all prior steps are exhausted before issuing a complaint. In fact before issuing a complaint the Magistrates’ Court outlines that you must attempt to resolve the dispute directly with the other party before proceeding in the courts. In legal terminology a complaint is a legal document that sets out the facts and legal reasons that the filing party (you) believe are sufficient to support a claim against the party (debtor) that in entitles a remedy or damages to be paid.

Note that the the Magistrates’ Court of Victoria has jurisdiction to deal with debt recovery claims and damages claims up to the value of $100,000.

It’s very important that any agency collecting on your behalf ensures the following:

• The defence must be set out in numbered paragraphs and respond to each paragraph in the statement of claim.
• If the debt is denied or disputed, they must provide reasons for denying, including facts and evidence which supports their version.
• Whether the debtor agrees to any parts of the claim. If they do admit, they can not produce any evidence contrary at the hearing unless the plaintiff provides evidence first.
• If the debtor does not deny or admit to allegations it is deemed by the Australia courts to be admittance of the fact.

There is much to consider when issuing a complaint which is why we recommend using professional and experienced collectors who have in-house lawyers to assist and provide guidance for your unique case.

3. Service of complaint

The service of complaint refers to providing a valid copy of the complaint to the defendant (debtor). Once the complaint is filed within Australia courts both parties receive a case number and two blank notices of defence which must be served by the defendant within 12 months since the date filed. A Notice of Defence is what the debtor or defendant will use to defend against the claim. In most instances the Notice of Defence will require things such as the following:

• The defence must be set out in numbered paragraphs and respond to each paragraph in the statement of claim
• If the debt deniers they must provide reasons for denying the fact and outline their version
• Whether the debtor agrees to any factors. If they do admit they can not produce any evidence contrary at the hearing unless the plaintiff provides evidence first.
• If the debtor does not deny or admit to allegations its deemed by the Australia courts to be admittance of the fact.

Judgement or Payment Arrangements

Once judgement is received in your favour the defendant will be requested to repay the amount outstanding. At this stage a number of outcomes can be the case depending on the state of the defendant’s cashflow. Outcomes may involve the following:

• Warrant to seize assets (6 – 8 weeks)
• Warrant of seizure & sale to sell real estate (10 – 12 weeks)
• Bankruptcy notice (2 weeks)
• Petition (8 -10 weeks)
• Oral examination to understand debtor’s financial position (8 weeks)
• Order against debtor’s earnings (6 weeks)
• Installment order (4 weeks)
• Oral examination (4 weeks)
• Statutory demand (21 days)
• Winding up petition (8 -10 weeks)

Recommended reading

• https://www.magistratescourt.vic.gov.au/jurisdictions/civil/procedural-information/defending-matter
• https://www.magistratescourt.vic.gov.au/jurisdictions/civil/procedural-information/commencing-civil-proceedings