Debt Recovery vs Debt Management

There are a number of different mechanisms available to recover a debt owed, including, but not limited to:

• Commencing proceedings through the traditional courts;
• Making a claim with the Queensland Civil and Administrative Tribunal;
• Making a payment claim under the Building Industry Fairness (Security of Payment) Act 2017;
• Claiming a Sub-Contractor's charge under the Building Industry Fairness (Security of Payment) Act 2017;
• Serving a Creditor's Statutory Demand for Payment of Debt pursuant to the Corporations Act 2001 (Cth);
• Director's Guarantees; and
• Retention of Title Clauses (also known as "Romalpa Clauses").

Although there are a number of processes available to recover a debt, not all options will be available in all circumstances.  For example, payment claims are only available to the parties to an eligible construction contract (i.e. in many instances, a builder and a contractor).

It is also the case that some debt recovery processes will be more practical than others.  However, debt recovery can be largely avoided when proper debt management processes are in place.

The Difference between Debt Recovery and Debt Management

So what is the difference between debt management and debt recovery?  Simply put, debt management is the process utilised to avoid the need for debt recovery, and begins well before any transactions are made.  Debt management is an important aspect of any commercial relationship where credit is being extended to a customer, and includes the following:

• proper identification of the customer/client (i.e. who is the legal entity who will be responsible for paying your accounts?);
• Appropriate terms of trade (including payment terms, interest and debt recovery processes, should they become necessary); and
• Director's guarantees (that is, if dealing with a corporate entity, obtaining a guarantee from the director/s that they will be personally liable for any debts of the company).

In addition to the above, proper debt management involves systems and processes which help to keep debtor balances in check.  Such processes might include automatically generated overdue reminders or prompts at 30, 60 and 90 day intervals to ensure that outstanding accounts are regularly monitored.

In short, whilst there are many forms of debt recovery, the need for these may be avoided by proper debt management protocols.  Don't let your debtors get out of control, we can assist you in developing and implementing a debt management system that is right for you.