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Bad debt collection can be costly mistake

Adam Zuchetti
Adam Zuchetti
09 July 2019 3 minute readShare
Brian Carter

With financial performance under scrutiny at tax time, overdue accounts come into the spotlight. And businesses are being cautioned about how they approach collecting outstanding debts.

Brian Carter (pictured), chair of the Australian Institute of Commercial Recovery and managing director of R&R (Recoveries & Reconstruction), said that now is a common time of year for debt recovery assistance to be sought.

However, he warned that at a time when Australia’s economy is slowing markedly and “household debt-to-income ratios [have soared] above 200 per cent”, businesses should be particularly alert to the quality of debt recovery advice they seek and the approach they take in managing clients facing potential hardship.

“We’ve all been shocked by the horror stories of destitute pensioners hounded over unpaid accounts, families (and their pets) traumatised and harassed to make payments, and even students mistakenly called by robo-debt collection schemes,” Mr Carter said.

“Let’s face it, no one wants to lose a customer. Repeat business is the lifeblood of any successful business, so it makes sense, therefore, to employ recovery professionals who share the same ethics and values.”

According to Mr Carter, businesses chasing outstanding debts should look to the institute’s code of ethics for advice on how to approach this delicate subject, and proceed with the following points in mind:

1. Have some situational awareness

“Appreciate that many customers face financial difficulties from time to time,” he said.

“Australia has one of the highest debt-to-income ratios in the world. One in six Australians are apparently struggling to pay their bills.”

2. Be compliant

There are some legal parameters around what can and cannot be done to chase outstanding payments. Non-compliance with these rules can have harmful effects, Mr Carter said.

“Non-compliant debt collection practices will not only get the operator and businesses into the sights of the regulator, but worse, they will result in significant stress and harm to vulnerable and disadvantaged consumers. This will almost certainly impact upon customer bases.”

3. Be respectful

That leads into Mr Carter’s third point, which is to put frustrations over late monies aside and be respectful in your dealings.

“Be helpful, courteous and polite and consider the [client’s] interests always,” he said.

“Work with customers to achieve mutually acceptable outcomes. Acknowledge that everyone has felt financially stretched at one point in their life.”

4. Do your research

As a debt recovery professional himself, Mr Carter understandably suggested that debt recovery professionals can be a good way of outsourcing the collection of debts. But he cautioned that the actions of this person or firm can reflect on the reputation of your own business.

“It can be very damaging to brand and reputation if [collections are] done unethically and callously,” he said.

“It is essential for businesses to properly research the organisation they engage.”

Shake-up of payment terms

Mr Carter’s comments come amid building momentum to change the status quo over payment terms to SMEs.

Several governments have implemented changes in their processing of invoices to speed up payment times to SME suppliers over the past year.

In November, Prime Minister Scott Morrison announced that the federal government would force corporate Australia to match its own commitment to pay SME invoices within 20 days when tendering for contracts.

Several state governments have also made promises to speed up their payments of SME invoices, with NSW working towards making five-day payment terms standard.

Meanwhile, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) is pushing for greater transparency of payment terms by big business.

In its Review of Payment Terms, Time and Practices report, published in March this year, the ASBFEO petitioned to the government that it be allowed to develop “an independent annual reporting framework, requiring businesses with over $100 million turnover — including foreign companies and government entities — to publish their payment practices”.

This, the ombudsman said, would open to public scrutiny the payment times, volume of complaints from SMEs and performance in achieving stipulated invoice payment times to around 3,000 of Australia’s largest organisations.

In late 2018, a poll of more than 500 Australian SMEs looked into which industries they faced the greatest challenges in being paid on time. The Prushka Fast Debt Recovery survey found that building and construction was by far the slowest industry to pay invoices, with professional services and retail businesses also identified as having significant room for improvement.

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Bad debt collection can be costly mistake
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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