By Anica Cunanan, Solicitor at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group
An effective debt collection system is critical to businesses who provide goods or services “on credit”. But how to go about debt collection whilst still trying to maintain good customer relationships?
In our experience, nothing poisons a business relationship like bad debt collection. At the risk of sounding heretical, sometimes the customer is not right, when they simply refuse to pay for no reason. The value of such customer relationship might be doubted, and the method debt collection may not matter. But in other cases, the customer just needs a gentle (or possibly less gentle!) debt collection technique. In all cases, the question is this: How does a business continue to manage a customer relationship whilst ensuring that their account is paid on time?
Debt collection can be daunting and it is common for many to hesitate in taking debt collection action due to the fear of damaging customer relationships. However, actively involving a good debt collection lawyer as part of your debt collection system may be more productive and efficient than it may seem on the surface. Debt collection using lawyers is sometimes avoided due to the misconception that all lawyers take a “hard approach” to debt collection. Actually, a good debt collection lawyer should engage with the client in order to understand the client relationship dynamic before embarking upon debt collection. Good debt collection lawyers are professional, courteous, but firm where necessary, and only act in accordance with your instructions. A good debt collection lawyer can adjust the way in which customers are approached dependant upon your preference and relationship with that customer. A good debt collection lawyer may enable you to avoid that awkward conversation with your customer.
It can also be especially important for businesses to engage a good debt collection lawyer ‘behind the scenes’, helping to set expectations early on in customer relationships (such as communicating payment policies, default terms etc.). Setting expectations early on in your relationship with your customers will enable them to understand your debt collection system without any animosity. This can be as easy as reviewing your terms and conditions to ensure those terms are easily understood by your customer and these terms specify your debt collection system and avoid debt collection traps.
In our experience, we have been both loosely and also actively involved in some of our clients’ debt collection systems and have seen our clients continue their customer relationships whilst ensuring that debts have been collected or are being collected. You do not have to wait to pursue a debt before obtaining legal advice. Legal advice can also be obtained in respect of improving your debt collection systems, such as reviewing terms and conditions and in turn improving your debt collection system.
Matthews Folbigg Lawyers has a specialist team dedicated to Insolvency, Restructuring and Debt Collection.
If you would like more information or advice in relation to recovery from debtors, garnishee orders, or in relation to and Insolvency, Restructuring or Debt Recovery practice and procedure, please contact Stephen Mullette or Jeffrey Brown on (02) 9806 7459 or (02) 9806 7446, or email stephenm@matthewsfolbigg.com.au or jeffreyb@matthewsfolbigg.com.au.
