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How to collect unpaid invoices during COVID-19: Debt collection webinar

How to collect unpaid invoices during COVID-19: Debt collection webinar

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COVID-19 has spun business on its head. While some businesses are powering on, others are scrambling to survive.

Importantly, a customer’s obligation to pay for goods and services that you have provided has not changed. Your process to collect debts should adapt if it needs to, but it should continue. Overdue invoices are an unnecessary cash flow burden that few businesses can afford to carry right now.

Andrew Smith, CEO, ARMA

In a recent webinar [15 April 2020], the debt collection specialists from ARMA shared their expertise on how creditors can work with their customers to get paid during COVID-19. (You can watch the full webinar at the bottom of this page).

ARMA’s CEO, Andrew Smith, and Head of Sales, Eddie Smith, have hundreds of conversations each day with creditors and their debtors, and offer this advice:

Key points:

  • Be honest, open and compassionate with customers

  • Mix up your communication channels

  • Communicate frequently

  • Use pre-legal options such as demand letters

  • Seek extra protection on your credit

  • Future-proof your collections process

Trial ezyCollect for 2 months free during COVID-19

Be honest, open and compassionate with customers

Suppliers want to maintain strong relationships with their customers. But relationships can deteriorate when debtors prolong payment times without agreement. As a creditor, be honest with your customers about your payment expectations—it permits your customers to be open and honest with you in return.

For example, start a debt collection conversation the same way that you hope someone would speak with you. Ask your customer how they have been impacted by the current pandemic situation. Listen, and share your understanding. Then let your customer know that you need to understand how they intend to start paying your overdue invoices.

Additionally, be prepared to accept payments in instalments and to negotiate ongoing credit terms. This way, you map a way forward for your customer to repay outstanding invoices. You also put more protection around future credit that you may extend to them.

Mix up your communication channels

It’s not business as usual for most of us. Your customer may close their office and work different hours from home. Try contacting your customers via text message, email, and phone. Pay attention to how your customers are responding, then adapt to their preferred channel, even if it’s not your preference.

For example, while Andrew likes to call debtors and speak with them over the phone, he sees a high response rate from text messages as people reply after hours. Give people a little extra time to respond, as your customers may also be looking after their children at home during the day.

Communicate frequently

The business payment landscape is changing rapidly, even daily. As stimulus packages start to roll out, businesses that were hanging on to their cash last week will soon have cash on hand to pay their bills. 

Therefore, don’t be shy about staying in touch with your customers and politely pursuing the payment conversation. As Andrew points out, the purpose of the stimulus packages is to keep businesses trading and that includes paying their bills. 

In fact, your communication can be really helpful to customers right now, especially if you can share how they can access stimulus packages available to them. 

You can download a one page summary of Australian stimulus packages here: Stimulus and Assistance Guide for Individuals and Businesses.

Remember, communicate consistently and politely, don’t harass or intimidate. For more information on debt collection guidelines from the Australian Competition and Consumer Commission (ACCC), read our post here.

Yes, you can still send a demand letter

While the Australian Government has temporarily changed debt collection laws as a coronavirus response, pre-legal avenues are unchanged. In fact, they are more important than ever, says Eddie.

Regardless of COVID-19, paying a bill when it falls due it still a requirement of your credit terms and the law. (Some companies are freezing billing on mortgages, energy etc.)

As debt recovery experts, Andrew and Eddie know for a fact that invoices become harder to collect as they age. Their advice is to bring forward your threshold for sending a demand letter; if you used to wait for 90 days overdue, bring it forward to 60 days or sooner. 

At ARMA, they have changed the wording of their standard demand letter to assure debtors that there are extra options for them to settle their account.

Try wording such as:

‘We understand that your business may have been affected by COVID-19, and we can provide you with additional options to assist your payments throughout this period. 

We request that you contact our customer service team on <<Phone Number>> to provide further information to enable us to assist you. 

Failure to contact us will result in this account proceeding to our debt collection agency.’

Seek extra protection before extending new credit

If you don’t already have these measures in place (don’t panic, many businesses don’t), consider adding these conditions to your new contracts so you have more options to recover any debt if a customer’s business fails:

  • Personal Guarantees, Director Guarantees: If your customer fails, your business can pursue the personal guarantor or business directors to recover any losses.

  • PPSR: A national register where you make a claim to retain an interest on goods that you have supplied but not yet been paid for.

  • Caveats: Claiming an interest in a debtor’s personal property as security over credit you have extended.

  • Lodge a credit default: List a default on a customer’s credit report with a commercial credit bureau.

  • Costs Clause: Include a clause in your contracts stating that your debtor is responsible for specified costs you incur to recover the debt.

In Eddie’s experience, creditors hesitate to ask their customers for these assurances, but his advice is simple: Have the conversation upfront.

It’s not too late to go back to existing customers and negotiate new terms. Help your customers to understand that you want to keep trading them but need further security if their payment behaviour has been deteriorating. You’ll be surprised to know how many customers will accept greater controls so they can keep trading with you and avoid going on credit hold or being referred to the courts.

Seek legal advice on any contractual changes.

Future-proof your collections process

Learn from what’s happening now and put more safeguards around your debt collection for future uncertainties.

  • Enhance your capacity to communicate digitally with your customers.

  • Update your customers’ contact details, including business identifiers such as ABNs and business addresses, so that if you need to pursue customers, you know how to find them.

  • Improve your overdue invoice tracking system so that you have high visibility of your ageing invoices.

  • Automate the collections process as much as you can so you create time for meaningful conversations and customer relationship management.

  • Rigorously monitor the financial health of your customers with services like credit risk monitoring. Don’t just rely on your customer’s word.

  • Review your contracts and terms and conditions to get better security over your goods and services.

  • Be prepared to stop supply if customers exceed their limits or terms.


Watch the full 1-hour webinar below. (Note that offers included in this webinar expire 30 April 2020).

ezyCollect and ARMA webinar 15 April 2020: What are your options if your customers stop paying you?

Get started on ezyCollect’s credit management and accounts receivable platform for free:

Get Started

New debt collection laws: How they affect your business

New debt collection laws: How they affect your business

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Under temporary new Australian laws relating to corporate debt collection, creditors still have the right to enforce debts through the courts but the thresholds have changed. In response to the economic fallout from the coronavirus pandemic, the new laws will remain in place for the next six months, with the option to extend to a year.

Key points:

As of 23 March 2020, amendments to the Corporations Act 2001 (Cth) and the Bankruptcy Act 1996 (Cth) allow the following temporary relief for companies in financial distress:

  • The statutory minimum debt is increased from $2,000 to $20,000.

  • The statutory period to comply with a statutory demand is extended from 21 days to six months.

  • Safe harbor for company directors from any personal liability for trading while insolvent.

  • The minimum amount of debt required for a creditor to initiate bankruptcy proceedings is increased from $5,000 to $20,000.

Creditors can still pursue unpaid invoices


Creditors can still pursue pre-legal collections as before. In fact, a business’ internal accounts receivable process should be more robust than ever in these uncertain times. Now is the time for a business to review its credit policies and the credit terms it extends to customers. In another article, we’ll cover options for businesses when your customers stop paying their invoices during the COVID-19 pandemic. In the meantime, you can register for our upcoming webinar:


WEBINAR: WHAT ARE YOUR OPTIONS IF YOUR CUSTOMERS STOP PAYING THEIR INVOICES?

Date: Wednesday 15 April 2020
Time: 11.30 a.m. to 12.30 p.m. AEST
How to join: Via Zoom


Register for the webinar



What are statutory debts and statutory demands?

A debt is considered statutory if it is due and payable to a creditor and is claimed by the creditor under a statutory demand. The debt cannot be prospective, contingent or unliquidated.

Due to the Australian Government’s Coronavirus Economic Response, the statutory minimum debt is now $20,000. 

The revised statutory minimum debt of $20,000 only applies to statutory demands that are served on or after the commencement of the temporary changes and only while the temporary laws are in place.

Under the Corporations Act,  a statutory demand must be in writing and in the correct form: Form 509H.

A Form 509H is a written demand for payment sent by or on behalf of the creditor to the debtor company. It must include relevant information and be delivered according to the requirements of the Corporations Act. This is because the Courts can order a company into liquidation if it does not meet the statutory demand, so the Courts must be satisfied that the initial statutory demand was lawful.

A single statutory demand can include the total debts owed to the creditor and how the debts were incurred by the debtor company.

Among other criteria, the statutory demand must ensure the following:

  • is in writing;

  • be signed by on behalf of the creditor;

  • state the total amount of debt due and payable on the date of the demand;

  • includes the debtor’s company name and its registered office. 

  • includes an Australian location where the debtor company can pay the debt e.g. the creditor’s office or a solicitor’s premises. 

  • must be supported with a judgment of the Court or an affidavit

  • is left at or posted (not emailed) to the debtor company’s registered office or a copy delivered personally to a company director who resides in an Australian territory. 

Due to the compliance requirements, a creditor company will usually ask a solicitor to prepare and issue a statutory demand on its behalf.

Responding to a statutory demand

Time is critical for a debtor company once it has been served with a statutory demand. 

The statutory period to comply has changed due to the Australian Government’s Coronavirus Economic Response.

From 23 March 2020, the statutory period to comply with a demand is extended from 21 days to six months.

A debtor company may choose a number of actions after receiving a statutory demand:

  • Pay the creditor the amount in demand.

  • Seek to set aside a statutory demand that is accompanied by an affidavit.

  • Seek to set aside a statutory demand with a judgment.

A debtor company that seeks to set aside the statutory demand must be able to provide the Court with satisfactory evidence that there is a genuine dispute, they have an offsetting claim, the demand has formal defects, or there is another valid reason.

If a statutory demand is set aside by the Courts, there is no further legal effect of the demand and the Court may issue costs against the issuing creditor.

What is safe harbour from insolvent trading?


When a company has no capacity to pay back its debts when they are due, company directors have a personal responsibility to enter an insolvency procedure such as voluntary administration or liquidation.

The new temporary laws allow company directors to knowingly continue trading and incur debt even if the business is unable to pay its debts when they are due. Any debts incurred by the company will still be payable, once economic conditions improve. 

The new laws are intended to support businesses to continue to trade with purpose where possible through the Coronavirus crisis with the aim of returning to viability afterward. Directors are not relieved of their fiduciary, care and diligence responsibilities and must take care to fully  understand their director responsibilities before, during and after the Coronavirus pandemic. Companies that undertake dishonest or fraudulent practices will still be subject to criminal penalties. 

An increase to bankruptcy thresholds


Bankruptcy refers to personal, not company, insolvency. Under temporary changes to the Bankruptcy Act 1996 (Cth),  the creditor can initiate bankruptcy proceedings against a debtor when the minimum amount of debt is $20,000. 

A debtor now has six months (up from 21 days) to respond to a bankruptcy notice filed against them. Creditors retain the right to enforce debts against companies or individuals through the courts.

Planning for the future

The breathing space offered by the temporary relief measures is designed by the Australian Government to allow businesses more time to consider their recovery plans after the Coronavirus crisis. The government hopes that the safety net of extra time and lessening the threat of court actions will support otherwise viable businesses to resume normal business  operations instead of pushing them to insolvency.

Useful resources:

Read Treasury’s Fact Sheet: Temporary relief for financially distressed businesses

Read the ATO’s advice: Boosting cash flow for employers



Throughout the Coronavirus pandemic, ezyCollect is offering new users 2 months free use of the entire accounts receivable platform to help businesses recover outstanding invoices and mitigate credit risks.

Learn more


This is why we have debt collection guidelines

This is why we have debt collection guidelines

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A few landmark cases in Australian courts have highlighted the importance of following debt collection guidelines when recovering overdue cash from debtors. Thanks to high profile cases like these, debt collection practices have improved. They serve as good reminders of what not to do.

In Australia, the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investment Commission (ASIC) enforce Commonwealth consumer protection laws, including laws pertaining to debt collection. Their document, Debt collection guidelines for collectors and creditors outlines the responsibilities and expectations of creditors and debt collectors.

Do debt collection guidelines apply to you?

You should follow the ACCC and ASIC debt collection guidelines if you are:

  • a creditor directly involved in debt collection activities in-house, or a creditor who uses an agent for collection. (Creditors generally retain liability for their agent’s conduct.)
  • a debt collector (including a debt collection agency, debt buy-out service, solicitor and other).

While the debt collection guidelines largely relate to collecting debts from individual debtors, many of the laws and principles in the guidelines are relevant to the collection of small business debts in particular.

Debt collection guidelines for making contact with a debtor

Privacy laws prevail here and creditors and debt collectors have obligations to protect the privacy of debtors. In trying to contact the debtor, you are not allowed to divulge confidential information about the debt or the debt recovery process to anyone other than the debtor (even to the debtor’s spouse, partner, family, workplace etc.) Avoid public shaming of debtors on social media accounts or any channel that is shared with other parties.

Creditors and debt collectors must not misrepresent their identity to the debtor in any way, for example, by implying they are, or work for a debt collection agency.

Case in point #1

In ACCC vs Excite Mobile Pty Ltd [2013] FCA 350:

In 2013, South Australian mobile phone provider, Excite Mobile Pty Ltd was fined for engaging in false, misleading and unconscionable conduct, and using undue coercion in relation to the selling and obtaining payment for mobile phone services (ACCC, Media Release, 29 November 2013).

The company created a fake complaints handling organisation to deceive debtors into believing their disputes about liability were being assessed by an independent body when neither that body nor those activities existed. The company then contacted debtors under the false pretense of a fictitious debt collection agency to induce debtors to pay the alleged debts.

The court found this conduct to be unconscionable and that the company used undue coercion in its dealings with debtors. Several of the company’s employees were also found to have been knowingly concerned and personally liable for the contravening conduct. (ACCC, Debt collection guidelines for collectors and creditors, 2014)

The penalty: Excite Mobile Pty Ltd was ordered to pay penalties totalling $455,000. Excite Mobile’s directors, Mr Obie Brown and Mr David Samuel were also personally fined and were disqualified from managing a corporation for three years and two and a half years respectively.

Debt collection guidelines for conduct towards the debtor or their representatives

Debtors are entitled to respect and courtesy, and creditors and/or debt collectors have been penalised for subjecting debtors to misleading, humiliating or intimidating conduct. 

Included in ACCC and ASIC debt collection guidelines are the following list of things creditors and debt collectors must not do:

  • use abusive, offensive, obscene or discriminatory language
  • mislead a debtor about the nature or extent of a debt, or the consequences of non-payment.
  • embarrass or shame a debtor—for example, by sending open correspondence to a shared post-box, or public online forum    

If a debtor is behaving inappropriately, creditors are advised to maintain professional conduct and refer the matter to appropriately trained management. Violence or extreme conduct from the debtor should be reported to police.

Case in point #2

In ASIC v Accounts Control Management Services Pty Ltd [2012] FCA 116:

In 2012, the Federal Court found that debt collection companies, ACM Group Limited and its predecessor Accounts Control Management Services Pty Ltd, harassed and coerced debtors and engaged in misleading and deceptive conduct when recovering money.

The court found that the collection officers were instructed via the company’s (then) policy manual to threaten debtors with litigation even though less than 0.5% of debtor accounts were sent to the legal department.

The company represented to a debtor that it was commencing proceedings to bankrupt the debtor, which would involve his house being repossessed, when this was not true. The company also represented to a debtor that it would cause Sheriff’s officers to attend the debtor’s home to serve documents when this was not possible.

The court found that the operators were told to make references to legal proceedings and lawyers as a means of achieving debt recoveries. (ACCC, Debt collection guidelines for collectors and creditors, 2014).

In its 2015 report, Research into the  Australian Debt Collection Industry, the ACCC noted that increased regulatory insight had led to an improvement in debt collection behaviour. It notes that despite variations in state and territory licensing regimes, the key obligations of debt collectors when dealing with consumers are made clear by the ACCC/ASIC Debt Collection Guideline

Debt collection guidelines for collectors and creditors  is available in full from the ACCC website.

Demand letter template: The correct way to write a letter of demand

Demand letter template: The correct way to write a letter of demand

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A demand letter can be a powerful addition to your collection strategy. Think of it as being more formal than your payment reminders, less formal than a legal notice. An effective demand letter, also known as a letter of demand, dunning letter or debt collection letter, helps your customer to understand the consequences of paying late. It provides details of the debt you’re owed and your payment expectations. In this post, we break down the anatomy of a demand letter so that you can create a compelling piece of communication that expedites cash recovery.

When do I need a demand letter?

A demand letter typically follows a series of failed attempts by the creditor to collect the money owed to them by their debtor. You can generate your own demand letter or you can pay a debt collection agency to send one on your behalf.

Imagine you’re the gift wholesaler, ABC Wholesalers. You’ve supplied your retail customer, XYZ Shopfront with $10,000 worth of goods on credit. The due date was 35 days ago, and since then you’ve sent a few emails to remind them to pay. Despite their promise to pay, the money has not arrived. You’d like to retain XYZ Shopfront as a customer but you can no longer afford to carry this debt. You decide it’s time to take more serious action and send a demand letter.

Send a demand letter when:

  • You’ve sent payment reminders and made phone calls without getting a response from your customer.
  • Your customer promised to pay but the money never arrived.
  • You want to remind your customer of their payment obligations under your trade credit agreement.
  • You want to give your customer another opportunity to pay their invoice before you commence legal action.

Download our free reminder templates and AR resources

Advice from a debt recovery specialist

At ezyCollect, we partner with debt collection agencies who can help our users to send a demand letter easily. Our partners have a track record of using positive collection techniques to help businesses recover ageing commercial debts. We asked Eddie Smith, debt recovery specialist from Australian Recoveries & Mercantile Agents, for his advice on the best way to write and send a demand letter.

“A demand letter notifies a customer in writing that they are overdue in paying an account, and stipulates the sender’s expectation of payment. The letter of demand can be sent on the creditor’s letterhead or if it arrives on a third party letterhead, debtors tend to pay attention and are typically more influenced to pay,” advises Eddie.

Before you send a demand letter

Eddie’s advice is to make the effort to find out the root cause of non-payment before you send a demand letter.

  • Phone your customer and work on resolving any disputed invoices.
  • Send payment reminders (usually via email) with copies of the overdue invoices attached. Give your customer reasonable time to respond.
  • Consider allowing your debtor to pay off their debt in instalments if they are experiencing cashflow problems. (Pay by Instalments is a standard payment offer in ezyCollect’s online payment solution.)

The right time to send a demand letter

“The right time to send a demand letter is when your other internal efforts to recover the debt have been unsuccessful,” advises Eddie. “Once you’ve tried to reach your debtor with email or SMS reminders and phone calls, without success, sending a demand letter is a sensible next step.”

In Eddie’s experience, businesses used to reach the 90-day mark (the invoice is overdue by 90 days) before sending a demand letter, but the trend is changing.

“It’s more common that businesses want to send a demand letter within 60 days, as they understand it’s about getting paid as quickly as possible. They move through their internal efforts more efficiently, then outsource if they need to.”

Still, some businesses sit on overdue debts for far too long. “Small businesses can get personally attached to the debt and sincerely believe their customer will eventually pay—the ‘she’ll be right’ attitude. Bigger businesses don’t do that. For them, it’s about getting paid,” says Eddie.

Even the professionals find it harder to recover money as overdue days increase. “Your debtor’s financial situation can change over time, they might cease trading, and their contact details can change,” says Eddie. In most Australian states, invoices that are more than six years old are considered Statute Barred i.e. they are no longer legally enforceable due to the period of time that has elapsed since the debt was first issued.

Demand letter must-haves:

Eddie advises creditors to write a succinct letter, keep a copy of it, and send it via registered mail for proof of delivery.

Letterhead

Lay out your demand letter on your letterhead or if you have engaged a debt collection or legal firm, they will send the letter of demand on their letterhead. A letterhead contains relevant contact details, including an address and phone number for the business seeking the collection.

Date

It’s important that your letter is dated as evidence of when you tried to contact your debtor.

Debtor’s correct address

Make efforts to find the current listed business address for your debtor. Debt collection firms use a number of data sources to locate debtors.

Title

After your polite salutation, make it clear this is a letter of demand by stating ‘Letter of Demand from <company name> ’.

LETTER OF DEMAND

Details of the debt

Clearly state the details of the debt owing:

  • Total amount owing
  • Invoice number/s
  • Due date/s
  • Details of the goods or services provided
  • Any late penalties that have accrued (if documented in your customer’s signed contract)
  • The name of the person who signed the order with your business.

For your debtor’s reference, you can attach copies of invoices and your signed contract that includes payment terms and conditions.

Previous attempts to contact the debtor

Remind your debtor of your previous attempts to contact them about the debt. You can refer to the dates you sent emails or left a phone message.

State your expectation of payment

Outline your payment expectations within your desired time period. For example: ‘Please be advised that I expect full recovery for the debt of $10,000 within seven days of the date of this letter.’

Include payment methods

Advise your debtor of your accepted payment methods e.g. bank account for deposits, details to send a cheque, and/or credit card acceptance.

Consequences

Honestly advise your debtor of your next intended action if they don’t complete the payment. As a creditor, you are not allowed to misrepresent action that you do not intend to take i.e. do not suggest legal action will follow if this is not your intention. However, you can ‘reserve the right to take legal action without further notice to you.’

Remind your debtor of any court or recovery costs they will be liable for should you commence further action. Note that these terms should have been included in the most recent contract your customer signed as part of their trade agreement with you.

Closing
After a polite closing, e.g. ‘Yours sincerely,’ include your signature, name and title in your sign-off.

A note on tone

Being firm but reasonable in tone is important, says Eddie. When Eddie communicates on behalf of creditors, he understands the debt collection letter is an opportunity to save the customer relationship and resolve the issue in a positive way. “We aim to work out a solution for our client that maps a way forward for them and their debtor.”

To sum up:

  • Add a demand letter to your collection sequence. Send it when you need to take more serious action to recover unpaid invoices.
  • The demand letter clearly articulates your payment expectations.
  • Include all relevant invoice details and attach invoice copies.
  • Document your previous attempts to collect.
  • Remind your customers of the terms and conditions of your trade agreement.
  • Do not misrepresent your intended action.
  • The demand letter is an opportunity to recover the money in full or part, and save the customer relationship.

ezyCollect users can include a demand letter in their collections workflow and activate it with a single click within the app. Our debt collection partners then receive the history of your collection attempts and will send a demand letter on your behalf. A fee per letter applies.

To see our collections workflow in action, request a one-on-one demo:

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