When to use a debt collection service

If you don’t recover debt after:

you might decide to use a debt collection service.

A debt collection service is a business that tries to recover the money for you for a fee. Using a debt collection service goes one step further than sending a letter of demand. It signals to the hirer or buyer that you have decided to hand the matter over to professionals. This could further strain your business relationship, however sometimes it may be more important to get the money you are owed.

Follow our steps to learn how to use a debt collection service.

1. Find out who controls the other business

Make sure you’re dealing with the right person when trying to resolve a dispute. Do a general web search for their name or use these services to get their business name and company details:

2. Get advice

Consult your business adviser, industry association, union or lawyer for advice:

  • To find a lawyer, contact the Law Society or the Law Institute in your state or territory. For contact details search online.
  • Unions can represent independent contractors and help with disputes. To find out which union covers you, go to the Unions Australia website.
  • Get advice from a business enterprise centre. There are offices in every state and territory providing advisory services to small businesses.

3. Choose a type of debt collection service

Traditional debt recovery methods

Traditionally, a debt collection service will send a 'letter of demand' to the debtor on its letterhead, demanding that the debt is paid by a particular date or legal action may be taken. If necessary, the service will issue a second, 'final' letter of demand or follow up with a 'phone demand'. If unsuccessful, you can engage the service to take legal action on your behalf. The fee you’ll pay is referred to as a commission. Most commission rates for debt collection services vary between 5% and 30% of the value of the debt.

Debt purchasing or debt buying

In some cases, you can sell the debt to a debt collection service for a small percentage of the debt amount. The service will then pursue the debtor to recover part or all of the money owed. You’re not entitled to any of the money they recover. You may wish to consider this option when you have written off a debt.

Online debt recovery

Some debt collection services or lawyers provide online debt recovery services. Usually, these services require you to type in the information about the debt you want to recover, such as:

  • the debtor's business name
  • address
  • amount of debt
  • what the debt was for.

The service then generates a letter of demand for a fee that you pay online. The letter is usually sent to the debtor for you.


The advantages of online debt recovery are:

  • it's fast and easy
  • it's relatively cheap (often a fixed fee paid by credit card online)
  • the letter is usually on the letterhead of a lawyer or debt collection service so it may have more of an impact than an ordinary letter.


The disadvantages of online debt recovery are:

  • you have little control over what is written
  • you probably won't get advice as part of the service
  • there are the usual dangers of using internet services, such as fraud and insecure payments
  • it could damage your future business relationship with the hirer.

Example: engaging a debt collection service on an annual basis

Simon is an independent contractor who provides computer services to small businesses. After losing $7000 in one year from several unpaid bills from customers, he decided to engage a debt collection service on an ongoing basis. He paid an annual fee of $2000 for this service. On all his contracts, quotations and invoices, Simon included terms and conditions of payment provided by the service. They state that any costs associated with recovering the debt will be charged to the hirer.

In some cases, if a bill is not paid on time, Simon asks the debt collection agency to chase the payment. They do this until the debt is paid and the agency's costs are recovered. Simon doesn't use the agency for all his unpaid bills because sometimes he wants to maintain the business relationship so he can get more work from that hirer in the future. He uses negotiation, first and second reminder letters and, if necessary, mediation to come to an arrangement with valuable hirers that he knows are worth the effort.

Simon sees the annual fee as a form of insurance and a way to reduce worry and stress about money.

4. Find a debt collection service

To find a debt collection service provider you can:

  • search online under 'debt collection services' or 'debt collect'
  • find an online debt collection service or lawyer by doing a general web search for 'online debt collect'.

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