If someone owes a debt to you, whether they and/or you be an individual or a company, and defaults in repayment of the debt then there are a number of steps you may be able to take to recover the debt.

Step 1 – Send a Letter of Demand.

A letter of demand is a letter from the lender to the borrower requesting that the debt be repaid by a certain date.

A letter of demand serves two purposes.  First, it gives the borrower a final opportunity to repay the debt.  Second, if the lender eventually commences legal proceedings then the lender can show the court that it took reasonable and appropriate steps to attempt to recover the debt from the borrower.

A letter of demand should:

  • be addressed to the borrower
  • dated
  • provide details of the debt and lender
  • specify the repayment date
  • inform the borrower that if they don’t repay the debt by the repayment date specified in the letter of demand then the lender will commence legal proceedings to recover the debt without further notice to the borrower, but only if the lender is prepared to commence legal proceedings.  If the lender is not prepared to commence legal proceedings then informing the borrower that legal proceedings will be commenced in the event of non-payment should be carefully considered.

Step 2 – Work with a Debt Collection Agency

First, pick the agency.  Do they have a legal department that will take the matter to court if other attempts to recover the debt are unsuccessful?  Do they have a good track record?

Second, negotiate the terms of their engagement.  How do they charge (e.g. fixed fee or a percentage of the debt collected)?  Does it matter how much you are owed?  What do you want them to do?  What do they suggest?  Do they communicate their progress to you on an ongoing basis?  Are there any limits to what they will be engaged to do?  How much will you accept from the borrower if they offer to repay some of the debt?  Debt collection agencies use a variety of ways to collect debts, including telephone calls, letters, emails and site visits to the borrower.

Third, provide them with all the information you can in relation to the debt, in particular any evidence of the debt (e.g. the borrower’s initial request for funds, a loan agreement, bank statements, acknowledgment of the debt by the borrower and your attempts to recover the debt).  This should make their job easier.

Then let them get to work.

Before you engage a debt collection agency you should check that they will regularly communicate with you on their progress, or if they don’t then there is a way for you to contact them.

Further Steps

If attempts by a debt collection agency to collect a debt are unsuccessful, then at some stage you will need to decide whether to engage a lawyer to commence legal proceedings to attempt to recover the debt through the courts or do this yourself.

Lachlan McKnight

Next Steps

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