What to Do if Your Business Has Been Contacted by a Debt Collector

Having a debt collector knock on your door is a daunting experience for any business. Whether you are a small startup or an established business, understanding how to navigate this situation is essential for maintaining your business' finances and reputation. As a business owner, you should understand your rights and obligations when faced with a debt collector to ensure you respond appropriately and protect your interests. This article will outline your rights and obligations when engaging with a debt collector, the steps you should take and potential legal risks.

What is a Debt Collector?

A debt collector is an independent party acting as an intermediary between you and the creditor to recover an unpaid debt. They are obligated to act fairly and comply with applicable laws and regulations.

Steps for dealing with a debt collector are outlined below.

1. Know Your Rights

Transparency and honesty are your key obligations when contacted by a debt collector. You must ensure you do not make false, misleading or deceptive representations to the debt collector. It is unlawful to make such a representation and could result in further legal action.

A debt collector must also treat you fairly and transparently and is prohibited from misleading and deceiving you. It is unlawful for a debt collector to harass or coerce you into paying the debt. Harassment or coercion may look like:

• threatening or intimating behaviour;
• frequent and unreasonable contact with you, your family and friends;
• contacting you at unsociable times; and
• misrepresenting their intentions to you.

2. Verify the Debt

Before doing anything else, you should verify the debt with the debt collector. You should request a written breakdown of the amount owed, including:

• any interest;
• fees; or
• other relevant documentation.

Once you have this information, check it against your records to ensure it is accurate.

One thing to look out for is the debt date. If the debt is older than six years, it may no longer be enforceable under limitation laws. In this case, you should contact a lawyer to confirm whether limitations apply.

3. Consider Your Payment Options

Where the debt is valid, you should consider your payment options carefully. If you do not dispute the debt and can make the payment, doing so in the first instance is strongly recommended. In some cases where you may not be in a position to pay the full amount but can do so soon, you may want to initiate negotiations for a payment plan. When you and your creditor agree on a payment plan, it can effectively resolve the unpaid debt and protect your business relationship.

If you cannot pay the debt because your business is about to be liquidated or bankrupt, you must communicate that to the debt collector. If you believe the debt is disputed, clearly outline this to the debt collector and state your reasons. You should also seek legal advice.

4. Legal Considerations

If you fail to pay the unpaid debt, you risk legal proceedings being brought against you and your business, including a statutory demand. If done correctly and lawfully, this demand obligates you to either:

• pay within 15 working days;
• reach an agreement; or
• set aside the demand.

However, if you fail to do so, liquidation of your business may be initiated. It is important you take all necessary steps to avoid a statutory demand being issued against your business.

You should consult a lawyer regarding your debt to discuss your business's best options and to guide you on an appropriate path forward. If you receive a statutory demand, you should contact your lawyer immediately.

Complaint Services

Despite debt collectors' and creditors' legal obligations to your business, some may engage in improper practices. If you encounter issues with a debt collector, external complaint services are available to assist you.

The privacy commissioner can address complaints if the debt collector has breached your privacy or caused significant harm. For instance, contacting your family about your business debt without permission may constitute a privacy breach. Significant harm may include:

• violating your rights; or
• causing severe embarrassment, hurt feelings or loss of dignity.

5. Take Preventative Measures

You should consider implementing preventative measures to avoid future unpaid debts. Management practices where you regularly review your accounts and invoices will help you stay on top of comings and goings. Additionally, addressing potential cash flow issues early will help prevent debts from escalating. If you know an invoice will go unpaid, contact the creditor and let them know you acknowledge the amount is due and are working on paying it.

Key Takeaways

Debt collection can be stressful, but understanding your rights and obligations is key to navigating this process effectively. When a debt collector contacts you, you should:

1. verify the debt;
2. consider your options, including making the full payment or negotiating a payment plan;
3. be transparent and honest about where your business stands with this debt; and
4. understand the potential risks should you not pay the debt.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.