There are a lot matters to consider when choosing a third party to engage to recover your outstanding debt.
In order to maximise your chance of a quick, cost effective recovery, you should ask the following:
- How much do you charge for a letter of demand?
The first step in any debt recovery process is to issue a formal letter of demand seeking payment of the debt. A well-drafted letter of demand can often mean the difference in obtaining prompt recovery of your debt, without having to engage in lengthy and expensive court proceedings. Many debt recovery lawyers and lawyers offer competitive, fixed fee arrangements for letters of demand.
- Do you charge commission? How much do you charge?
Many debt collector companies (mercantile agents) charge a commission for their services, meaning that whilst they may not charge any upfront fees, they will claim a percentage of any funds recovered (generally between 20% to 30%). Whilst the lack of upfront fees may be appealing, it is important to identify the amount of commission that will be charged and consider the effect that this will have on your ultimate recovery, should the money be recovered.
- How do you send the letter of demand to the debtor?
The main purpose of the letter of demand is to bring your debt to the attention of the debtor so that they take action to pay the debt. In order to ensure this it is important to ask how the letter of demand will be sent to the debtor, including what addresses it will be sent to and whether the letter of demand will also be sent by email.
- I don’t know my debtor’s address. Is there any way to locate them?
In some cases your debtor may have moved and you do not know their new address. There are a range of options available to locate a debtor’s whereabouts.
- What if the debtor doesn’t pay in response to the letter of demand? What do you do next and what will it cost?
Whilst a good letter of demand can often result in payment of the debt without further action, in the event that the debt is not paid it is important to know what the next steps are and what the costs of those steps will be. Generally, the next step will be to commence court proceedings against the debtor with a view to obtaining a judgment in the court that the money is payable which you can enforce using various court methods. It is also important to ask whether the court proceedings will be handled inhouse or whether your debt collector will need to outsource the legal proceedings to a third party law firm, if they are not successful in collecting the debt with the letter of demand.
- Will I be able to recover the costs from the debtor?
If you are successful in your court proceedings you will generally be entitled to an order that the defendant pay your costs in addition to your debt. However, the court sets a cap on how much of those costs you can recover depending on the amount of your claim. Accordingly, it is important to ask what the relevant cap on costs is to ensure that you will not be left too much out of pocket for your costs.
- How long will it take to recover the money?
Costs are not the important matter in choosing who to use to help collect your debt. As bad debts can hurt your business’ cash flow the longer they go uncollected, it is important to identify how long the debt recovery process can take. Whilst each matter will be different, your debt recovery collector should be able to get an indication of the usual timelines for the debt recovery process.
- Is it worth to spending the money to recover the debt?
Before engaging a debt recovery collector you should to make an assessment as to whether it is economically worthwhile incurring the costs of taking debt recovery action against your debtor. Relevant considers include the estimated cost of debt recovery action compared to the amount of the debt and the likelihood that the debtor has the money or assets to satisfy the debt in the event that you obtain judgment against them.
- Can you recover debts outside of Sydney?
As a commercial reality most businesses will find themselves dealing with businesses across different states. Whilst modern technology makes taking debt recovery in different states easier then ever before, each state has its own rules and procedures for debt recovery. If you have a debtor based outside of NSW (or your business is based outside of NSW) it is important to ask whether your debt collector is capable of commencing and enforcing debt recovery proceedings in different states, and whether this will result in any additional costs.
- How long have you been collecting debts? What is your success rate?
Experience, history, achievements, successes – these are important factors to consider when choosing a debt recovery company and further whether you rather a debt collector as mercantile agents or a law firm. So, don’t miss enquiring about their credibility in collecting debts. Besides, as a client, it is your right to know how effective the debt collectors you will be hiring.