By Jamieson Naylor, Law Clerk at Matthews Folbigg Lawyers in our Insolvency, Restructuring and Debt Recovery Group
If you are providing goods and services on credit, at times you may be required to engage in the process of debt collection. So, how can you make the debt collection process as streamlined and successful as possible? As you may have guessed, the key is information!
There are steps that can be taken and searches that can be conducted to obtain information surrounding a debt or debtor, and in our experience, the prospects of successfully recovering a debt greatly improve when a creditor has an abundance of information. The debt collection process will also generally be much cheaper and require less investigative measures.
The starting point of any well-established credit management procedure occurs before a line of credit is provided. At the risk of sounding pessimistic, every new customer who seeks credit should be treated as a potential long-term debtor. This should involve accurately identifying the customer and understanding their financial affairs. There are a range of ways that you can achieve this, and we recommend tailoring your approach to best manage your specific customer relationships.
If you intend to extend credit to a customer, it is crucial that up to date details are obtained to accurately identify the debtor. It can also be useful to obtain appropriate historical information. Steps should be taken to record, and verify, details such as:
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Verifying the identity and financial affairs of a potential debtor can be as simple as requesting a copy of, (in the case of a person), their driver’s licence and a recent payslip or bank statement. In the case of a company or partnership, a most recent copy of the entity’s financial reports and bank statements would be appropriate. Please keep in mind that the more detail you obtain on a potential debtor’s financial situation, the better protected you will be from unsuccessful debt collections.
Before credit is extended, it is also crucial to record and securely store the terms of the credit agreement and the debtor’s express acceptance of the agreement in a location that can be easily accessed. The credit agreement is one of the most significant pieces of information in the debt collection process as it substantiates your entitlement to the debt as well as any other rights you may have to secure and collect the debt.
Once credit has been approved and provided, it is important that you remain up to date on the financial circumstances of the debtor and that the details required to accurately identify the debtor remain current. This is a particularly important point if you provide ongoing credit.
The final bit of information that often impacts the effectiveness, and in turn the success, of debt collection is why the debtor has defaulted. Understanding the reason why a debtor has not paid puts you in a much better position to consider your options in the debt collection process.
The team at Matthews Folbigg Lawyers are experienced in the many ways to structure your credit management procedures to ensure that you have all the information necessary to manage your debt collection process successfully and economically.
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au
