Most Australian businesses provide services or products in exchange for payments. Clients can be individual consumers or often be another business, which the first one contracts as this is often the case in the building industry. It is unfortunate that sometimes, one party does not live up to the agreements in the contract and non-payment of business to business (B2B) debts can put the success of the principal business in jeopardy – and in the worst case a lot of people out of job. Since debt collection can be a stressful and lengthy process, a lot of businesses hire a collection agency to pursue accounts receivables for B2B debts to be able to focus on day-to-day operations. Once an invoice is overdue, it is important to know all the steps in the commercial debt collection process before thinking about taking legal action. We have put together some tips for the B2B debt collection process.
In any case of debt collection, the first step to take is usually getting in touch with the debtor once an invoice is past due date. This can be done via phone call or a friendly email reminder. However, if business creditors have requested payment numerous times, the next step of the collection efforts of business to business debts is sending a demand letter to the commercial debtor with the intention to reach a settlement outside of court. A demand letter aims for a quick solution in order to save money on legal fees by requesting payment of a debt, which is past due and action by a certain date. The letter of demand should include information on the amount of debt owed and the original due date, give the debtor the opportunity to deny the debt, or discuss solutions to resolve the debt including altering terms of the settlement.
The letter should furthermore inform the recipient that a debt collection agency is hired by the creditor to collect their debt. The document also includes the threat of legal action and is often enough to result in prompt payment by the recipient. Especially if the letter of demand is sent out by a collection agency, as the debtor may take the issue more seriously knowing what could happen if they continue to fail to meet their obligations.
If the debtor does not respond at all or has even filed for bankruptcy, a debt collector has many investigative tactics to track down a business owner’s location or is sometimes able to uncover hidden assets, which may be used to compensate the business’ creditor.
Once all attempts to collect a business to business debt fail, the last step to take is filing a debt recovery lawsuit against the business debtor. Again, this is where a collection agency comes into play, as such experts are able to file a legal claim on the creditors’ behalf if litigation is necessary. To successfully obtain a judgement, it is necessary to present strong evidence to the court that the debt claim is valid and accurate.
Such evidence may be the contract signed by both parties, emails indication concession of a debt, invoices submitted, account statements proving the non-payment or any other documentation that demonstrates the existence and nature of the debt. If the business creditor can prove the validity and non-payment of debt, the company is likely to obtain a judgement against the debtor from the court. Even if a judgement is obtained, this does not necessarily mean that the debtor will submit payment to the creditor. Unfortunately, in a lot of cases, the creditor has to implement judgement collection tools to secure payment.