In these Terms and Conditions, the Principal is the party completing and tendering a request form ("Form").
By sending or submitting the Form to AACAD$, the Principal acknowledges having read and being bound by these Terms and Conditions.
On recovering any money for the Principal, AACAD$ will send the Principal an amount of money received for the Principal less 20% commission plus GST, such commission calculated on the amount claimed by AACAD$ for the Principal together with any legal fees and expenses incurred in the legal proceedings.
The Principal will notify AACAD$ of a debt referred to in the Form being paid in whole, or in part, and acknowledges that it will pay AACAD$ the commission together with any legal fees and expenses incurred in the legal proceedings.
The Principal covenants the details supplied by it are true and correct and include all information relevant to the debt. If AACAD$ suffers loss or expense due to misleading, false or insufficient details supplied by or for the Principal, the Principal will indemnify AACAD$ in full for any loss or expense.
The Principal authorizes AACAD$ to do everything necessary to recover the debt including legal and enforcement proceedings.
AACAD$ can refuse to act as agent against any one or more debtors and can at any time by written notice, cease acting for the Principal.
The Principal's instructions to AACAD$ to recover the debt commences from the date or receipt of the Form or verbal instructions. If the Principal later instructs AACAD$ to terminate recovery or any proceedings for any reason AACAD$ can charge commission and expenses it has incurred as if the debt was paid in full.
AACAD$ can vary these Terms and Conditions by giving written notice of the variations to the Principal.
AACAD$ can destroy all files, documents and particulars provided by the Principal about any debt referral after the expiration of 30 days from the date communication is sent to the Principal advising either of payment of the debt, or that AACAD$ has closed the file.
Where the Principal fails to pay AACAD$ commission and GST (and any legal fees and expenses incurred in the legal proceedings) within 2 days from the date of the invoice AACAD$ can charge an account keeping fee calculated at the rate of $15.00 for every month in which there is a debit balance outstanding. In addition, the Principal is liable for all legal costs and expenses incurred by AACAD$ arising from the default.
All GST levied by the Commonwealth Government on AACAD$ commission together with any legal fees and expenses incurred in the legal proceedings is borne by the Principal and AACAD$ will provide a Tax Invoice.
“A corporation shall not use physical force, undue harassment, or coercion in connection with the supply or possible supply of goods or services to a consumer or the payment for goods or services by a consumer.”
The Court has not tested the scope of section 60 Trade Practices Act, and so there is little direct guidance for business or consumers. Australian Competition & Consumer Commission has developed this guideline, in consultation with relevant stakeholders, for the benefit of both business and consumers. It hopes the guideline will help clarify community expectations of businesses when collecting debts. Australian Competition & Consumer Commission considers that the conduct described in the guideline could risk contravening the relevant laws. However, a contravention of section 60 Trade Practices Act does not act as a defence to any obligation to pay a debt.
Section 60 Trade Practices Act applies to more than just debt collection. Section 60 Trade Practices Act applies to both the supply of goods or services and the collection of payment for goods or services. This guideline specifically deals with debt collection issues, but many of the principles could also apply to businesses engaged in the supply of goods or services. The guideline does not intend to limit the interpretation of section 60 Trade Practices Act as it applies to the supply of goods of services.
Debt collection is a legitimate and necessary business activity. Consumers who are legally bound to pay or repay money must meet that obligation unless they have a valid defence. Creditors and their agents can take reasonable steps to contact a debtor and make arrangements that will enable repayment of the debt. However, section 60 Trade Practices Act places broad limits on the conduct of collectors in order to protect consumers from unfair or intimidating behaviour.
A consumer’s failure to meet obligations under a debt may arise from a variety of circumstances. In some cases, a consumer may deliberately try to avoid repaying a debt. In others, a failure is not deliberate, but arises from over-commitment and/or major changes in financial circumstances resulting from, for example, unemployment, business failure, ill health, divorce, or separation. Alternatively, default may arise because a consumer disputes the validity, existence, or amount of the debt.
Often, if liability is not in dispute, one can make repayment arrangements, which enable a consumer to repay the debt over a period. Australian Competition & Consumer Commission strongly encourages collectors to negotiate realistic repayment arrangements with a debtor and, in doing so, to remember that debtors may have debts with a number of different creditors. Realistic repayment arrangements stand the best chance. If there is a process of bona fide negotiation, it may reduce the risk of contravening section 60 Trade Practices Act.
Consumers also have important responsibilities in relation to their debts. They should advise creditors of current contact details, and contact them when financial difficulties occur. Early communication between debtors and creditors — as soon as financial difficulties arise — will help to resolve the matter more quickly and reduce the risk that arrears become unmanageable. Australian Competition & Consumer Commission encourages consumers and creditors/collectors to use financial counsellors and other professionals who may be able to assist the debtor to manage their financial situation.
Is this guideline law?
This guideline does not have legal force. Australian Competition & Consumer Commission cannot make law; this is the role of the Parliament and the common law. Nor can Australian Competition & Consumer Commission provide a definitive interpretation of the law; this is the role of the courts.
However, as an enforcement agency Australian Competition & Consumer Commission considers it useful to identify the type of conduct it considers may be at risk of contravening section 60 Trade Practices Act of the Trade Practices Act (and/or other legislation). To decide whether the legislation has been breached Australian Competition & Consumer Commission approaches each matter on a case-by-case basis, taking into account all relevant circumstances. Compliance with the guideline is only one factor for consideration. This means that full compliance with the guideline can help minimise the risk of breaching the law, but cannot provide businesses with a guarantee against litigation.
Private persons can also institute proceedings for a contravention of section 60 Trade Practices Act. Compliance with the guideline will not necessarily protect businesses from litigation initiated by private parties.
Australian Competition & Consumer Commission hopes that businesses engaging in collection activity will implement the guideline, in terms of both the text and the spirit of the document.
Guideline subject to legislation & mandatory codes
As this guideline does not have legal force, compliance with it is subject to relevant legislative provisions or mandatory codes of conduct. This includes:
Regulations or legislation governing service of process and statutory notices;
Legal repossession activities and other legal enforcement of security interests;
Court ordered instalment arrangements;
Obligations under the Privacy Act;
Obligations under the Bankruptcy Act;
Obligations under industry licensing regulations; and
Any conduct specifically authorised by a court
Although the guidelines seek, as far as possible, to minimise the chance of inconsistency with other legislation, it is the responsibility of individual businesses to ensure that they comply with all applicable laws.
SCOPE OF THE GUIDELINE
These guidelines consider only the collection of debts from individual consumers. The scope of section 60 Trade Practices Act is wider than just debt collection from consumers. For example, many of the principles discussed here may also be appropriate when collecting business debts.
It is important to remember that section 60 Trade Practices Act is not limited to debt collection situations. It applies to many other situations where a consumer uses ‘undue harassment or coercion’ in supply of goods or services to consumers, or the payment for goods or services.
Contravention of section 60 Trade Practices Act is a criminal offence and can lead to the imposition of fines of up to $200 000 for a corporation, or $40 000 for an individual. Civil remedies for a contravention can include injunctions, damages, other orders, and enforceable undertakings.
PRINCIPALS & AGENTS
Where a creditor uses an agent for collection purposes, the creditor (as principal) may be liable for any conduct of the agent that contravenes the Trade Practices Act.
A corporation can take reasonable steps to pursue a debt owing to it or its client if the corporation is a debt collector. A debtor should receive fair treatment, respect, and courtesy, and not be unduly harassed or coerced. This guideline provides direction on:
Communicating with the debtor at, or away from, their workplace;
Frequency of communications;
Allowing arrangements and other processes to work;
Communicating with a debtor’s representative;
Communicating with third parties;
Misleading or deceptive conduct;
Language, violence, and physical force; and
Documentation and information
Communicating with the debtor away from their workplace
A collector has a right to communicate with a debtor to facilitate collection. However, all communications should be for reasonable purposes, and debtors should receive no undue harassment or communications at unreasonable hours.
1. A collector should not communicate with a debtor at any unusual time or place, or at any time or place that the collector knows or should know, would be unreasonable or substantially inconvenient to the debtor unless the debtor has given prior consent directly to the collector.
2. A collector can assume that the convenient time for communicating with a debtor is after 7.30 a.m. and before 9 p.m. local time at the debtor’s location, unless the collector is informed otherwise.
3. A collector should not communicate, or attempt to communicate, with a debtor before 7.30 a.m. or after 9 p.m. unless:
The debtor authorises communication at other hours; or
The collector has made reasonable efforts, over a reasonable period of time, to contact the debtor after 7.30 a.m. and before 9 p.m., and the collector has made reasonable attempts to contact the debtor using other, less intrusive, methods of communication.
Section 43 of the Fair Trading Act (SA) prohibits personal calls or telephone calls on a public holiday for the purpose of demanding payment.
4. A collector should not communicate with a debtor at any time or place where the debtor has requested that no communication be made, or using any mechanism that the debtor has requested not be used, unless:
The debtor has not provided an alternate and effective contact mechanism; or
The debtor does not respond through the agreed contact mechanism within a reasonable time.
Communicating with the debtor at the debtor’s workplace
Collectors should attempt to communicate with debtors outside of work where appropriate and possible, particularly for the initial contacts. Collectors should ensure that where communications or visits are to a debtor’s workplace, those contacts are discrete and with care. Debtors should be able to request that no communications occur at the workplace, as long as an alternative and effective contact mechanism is available.
1. A collector should not communicate with a debtor at the workplace, or visit the debtor at the workplace unless:
The debtor has specifically requested or authorised communications to be made at the workplace; or
The debtor has not provided an alternate and effective contact mechanism; or
The debtor is the proprietor or a director of a corporate proprietor of a business to which the debt relates.
2. A collector should not communicate with, or attempt to communicate with, a debtor at the workplace in a manner that:
Is likely to inform third parties of the existence of a debt; or
Discloses more than the name and contact details (including company name only if specifically requested by the third party) of the collector to third parties
Where necessary, a collector can communicate with the debtor by visiting the debtor in person. However, a collector should respect the debtor, and the household’s privacy and security. Generally, a collector should not use personal visits as the initial step in communicating with the debtor, and use personal visits if other, less intrusive, means of communication are available and effective.
1. A collector should not visit a debtor in connection with the collection of any debt at any unusual time or place, or any time or place known or known to be substantially inconvenient to the debtor, without the prior consent of the debtor given directly to the collector.
2. A collector can assume that the convenient time for making a personal visit to a debtor away from the workplace is after 7.30 a.m. and before 9 p.m. local time at the debtor’s location, unless the collector is informed otherwise.
3. A collector can assume that the convenient time for making a personal visit to a debtor at the workplace is during normal business hours (9 a.m. to 5 p.m.), unless the collector has information to the contrary.
4. A collector should not visit a debtor at the workplace if the debtor has so requested, and has provided an alternative and effective contact mechanism.
5. A collector should immediately leave private property or the debtor’s workplace if requested to do so by the debtor or another person.
6. A collector should not remain near the debtor’s location for an extended length of time for the purpose of:
Intimidating or embarrassing a debtor; or
Creating an impression that the debtor is under surveillance
FREQUENCY OF COMMUNICATIONS
Collectors are entitled to make reasonable efforts to contact debtors; however, debtors are entitled to be free from unnecessary communications. A collector should not make unsolicited communications with the debtor more frequently than is reasonable, and necessary according to the circumstance. One assesses whether frequency of communication is reasonable by looking at the purpose of the communications.
1. A collector should not make more than three unsolicited (answered) telephone calls per week to a debtor, or more than 10 unsolicited telephone calls per calendar month to a debtor (including telephone calls where the debtor terminates the call), unless they can show a legitimate reason for doing so.
In Queensland, the Consumer Code of Conduct for Commercial Agents restricts contact with debtors to a maximum of two per week.
2. A collector should not cause a telephone to ring, or engage any person in telephone conversation, repeatedly or continuously if it is reasonably likely to unduly abuse, or harass the person at the called number.
3. Collectors should not make unsolicited visits to a debtor more frequently than is reasonable and necessary, and no more frequently than once per week.
ALLOWING ARRANGEMENTS AND OTHER PROCESSES TO WORK
A collector should generally not contact a debtor if there is an informal arrangement for payment of the debt, and honoured, or if other legal processes or arrangements exist which make it inappropriate to contact the debtor.
1. A collector should not communicate with a debtor whilst an arrangement to pay is in place and being complied with, unless the communication is made:
At the request of the debtor;
To confirm the details of the arrangement and to advise the debtor of the consequences of not complying with the arrangement;
To provide a statement of the debtor’s account;
To advise the debtor of any legal remedies the collector intends to pursue whilst the arrangement is in place;
To make a legitimate offer of an alternative arrangement of benefit to the debtor; or
To review the arrangement (not more frequently than every three months)
2. A collector should not communicate with a debtor after the debtor has (in writing) denied liability or stated an intention to defend any legal proceedings brought against them and has requested that no further communication be made, except for:
Written communication that advises the debtor of the steps the collector intends to take with respect to legal proceedings;
Written communication that is genuinely designed to facilitate settlement of the matter;
Communication with respect to any part of a debt that is not denied;
Communication where a judgment for that debt has been obtained against the debtor, and has not been set aside; or
Further communication that is authorised by the debtor
3. A collector should not communicate with a debtor or third party for payment of the debt or to assert a right for payment once the collector becomes aware that the debtor is bankrupt or has entered into a Part IX or Part X agreement under the Bankruptcy Act, unless the communication is in accordance with that Act.
COMMUNICATING WITH A DEBTOR'S REPRESENTATIVE
A debtor can have another party represent them and/or advocate on their behalf when communicating with the collector. In turn, representatives must act reasonably, and the collector should be entitled to contact the debtor directly in appropriate circumstances.
1. A collector should not communicate directly with a debtor once the collector knows, or should know, that another person (e.g. solicitor, financial counsellor) represents the debtor in the matter, unless:
The debtor’s representative does not respond to communications from the collector within a reasonable time (normally 14 working days);
The debtor’s representative advises that he or she does not have instructions from the debtor in respect of this matter;
The representative does not consent to act;
Where the representative is not a solicitor, the collector advises that written authority for the collector to communicate through the debtor’s representative is required, and the debtor does not provide that authority; or
The debtor specifically requests communication from the collector.
COMMUNICATING WITH THIRD PARTIES
Collectors can contact third parties in order to facilitate communication with the debtor. However, third parties are not liable for the debt, and are under no obligation to provide information to the collector. They are entitled to similar (if not greater) protection from undue harassment. A collector should only make unsolicited communications to third parties as are reasonable and necessary according to the circumstances.
A collector should not assume that any member of the debtor’s family or household is aware of, or privy to, information about the debt situation, or that the debtor wants to inform such persons.
1. A collector should communicate with a third party only in relation to a debt to seek location information or to leave a message for the debtor.
2. A collector should not communicate with or visit a third party between the hours of 9 p.m. and 7.30 a.m. unless the communication or visit is authorised by the third party.
3. A collector should not repeatedly communicate with a third party to leave a message for the debtor if the collector knows or should know that the third party does not live or work with the debtor, unless:
The third party has agreed to further contact; or
The third party has requested the contact.
4. A collector should not communicate with a third party to seek location information about the debtor on more than one occasion within a six-month period, unless:
The third party has agreed to further contact; or
The third party has requested the contact.
5. A collector should not, make misleading or deceptive statements to a third party to obtain the debtor’s location, or other information about the debtor from that third party.
6. A collector should not disclose (or threaten to disclose) information about the debt (including the existence of the debt) to a third party, unless the Privacy Act permits disclosure.
7. A collector should not communicate with the debtor’s child or children (under the age of 18) about the debt, unless:
Communication with that child is specifically authorised by the debtor; or
The debtor asks the child to act as a translator.
MISLEADING OR DECEPTIVE CONDUCT
A collector must not engage in any other conduct that is misleading or deceptive or is likely to mislead or deceive.
1. A collector must not make a false or misleading representation about the nature of a collector’s identity.
2. A collector must not make a false or misleading representation about the consequences of non-payment. However, a collector can explain the consequences of non-payment.
3. A collector must not give information about the consequences of legal action that is misleading, deceptive, or likely to mislead or deceive. However, a collector can explain the consequences of legal action.
4. A collector must not use documents that could mislead the debtor into believing they are court documents.
5. A collector must not make false or misleading representations about the amount, character, or legal status of a debt.
6. A collector must not threaten criminal action if a debt is not paid. A collector must not engage in conduct that is likely to lead a debtor to believe that criminal action could be a consequence of non-payment, if the alleged conduct does not amount to a criminal offence.
7. A collector must not threaten action (legal or otherwise) that a collector cannot take or does not have the instructions or authority to take, at either any time or at the time when making the representation.
A collector should not exercise unacceptable or illegitimate pressure on a debtor or third party in order to persuade the recipient of the conduct to undertake a particular course of action.
1. A collector should not lead a debtor to believe that the collector’s decision to report an alleged criminal offence will depend on whether or not the debtor makes a payment.
2. A collector should not threaten to list a debtor on a blacklist or bad debts database or otherwise threaten to take action, which purports to affect a debtor’s credit rating or ability to obtain credit, unless such listing is permitted under the credit reporting provisions of the Privacy Act.
Language, violence, and physical force
A collector should not use abusive, threatening, offensive, obscene, or discriminatory language to a debtor or a third party.
A collector must not use, or threaten to use, violence, or physical force to any person.
A collector must not use, or threaten to use, violence, or physical force to property.
Such conduct is criminal under State and Territory criminal law.
Systems for complying with section 60 Trade Practices Act
Effective compliance systems reduce the risk of court action by either Australian Competition & Consumer Commission or a private litigant. An important part of an effective compliance system is the training given to staff and agents. This guideline should form part of any training and compliance system introduced by collectors.
A compliance guide for debt collectors has been developed, and designed for use in conjunction with this guideline.
A person collecting a debt in the course of a business and includes creditors, independent debt collection agencies, lawyers, government and court officials, and persons collecting on behalf of others where either the collector, or if the collector is an agent, its principal, is a corporation
Unless otherwise specified, includes communication by telephone, mobile telephone, fax, email, letter, and telegram
A natural person (or small company debtor) obligated or allegedly obligated to pay a debt. It includes a co-borrower or guarantor of the debtor.
Assessed according to an objective standard, taking into account all relevant circumstances
Any person other than the debtor, but does not include a debtor’s legal representative, trustee, or other authorised representative, or a guarantor or co-borrower. Nor does it include a related entity of the collector
Prepared by the Australian Competition and Consumer Commission for businesses that collect debts and has four sections:
Use this guide in conjunction with ACCC’s guideline Debt collection and the Trade Practices Act. Organisations can refer to the Australian Standard on Compliance Programs (AS 3806–1998) for more information on compliance.
PURPOSE OF COMPLIANCE GUIDE
This guide gives practical advice for business on establishing mechanisms and systems that promote compliance with section 60 of the Trade Practices Act 1974. Section 60 prohibits the use of physical force, undue harassment, or coercion by a corporation (or its servants or agents) in connection with the supply of goods or services to consumers, or in connection with payment by consumers for goods or services.
This guide focuses on the obligations that, section 60 imposes for the collection of payment for goods or services — that is, on the collection of debts based on the Australian Standard on Compliance Programs (AS 3806–1998).
In addition to the obligations imposed by section 60, those involved in collecting debts must comply with legal obligations imposed by other laws and regulations, including other provisions in the Trade Practices Act (especially sections 52 and 53), the Privacy Act, and any applicable State or Territory licensing legislation. Additionally, a member of an industry association may need to comply with a code of conduct or ethics promulgated by that association.
It is beyond the scope of the Compliance Guide to address procedures for compliance with all relevant laws. However, an effective compliance program should address all an organisation’s legal obligations. A system for compliance with section 60 can form the basis for compliance with other relevant industry laws and codes.
WHY IS THERE A NEED A COMPLIANCE SYSTEM?
A compliance system is an important tool to prevent contraventions of legislation. A compliance system should be an integral part of the risk-management operations for any business. The risks of contravening section 60 and other consumer protection provisions of the Act include:
Legal costs, including any legal costs of the applicant the business is required to pay because of unsuccessful litigation
Fines and penalties for a breach of the consumer protection provisions, fines can be up to $200,000.00 for a corporation and up to $40 000 for an individual
Refunds or compensation payments for affected consumers
Staff (including managerial) costs associated with preparing for and defending litigation
Loss of company reputation and, therefore, market share and profitability
Loss of clientele and
Damage to industry reputation
An effective compliance system can significantly reduce the risks of contravention and associated costs. Ultimately, a compliance system is a preventative mechanism. Initial costs in establishing a compliance system is recoverable in the long term by reducing the risk of contraventions and improved business efficiency.
WHY IS THE ACCC INTERESTED IN SECTION 60?
Feedback from various community organisations suggests that undue harassment and coercion are serious problems for consumers, particularly about the collection of debts.
The likely characteristics of consumers subject to debt collection activity compound the problems associated with undue harassment and make it difficult to detect. The people most affected by undue harassment are those who are least likely to know how to go about complaining to the relevant authorities. They may be on low incomes, have limited formal education and low literacy, numeracy and budgetary skills. They are unlikely to know their rights about the debt collection process.
ACCC has therefore been developing strategies to increase the effectiveness of section 60 and provide assistance to businesses seeking to comply with the provision. This guide forms part of the education and assistance strategy.
WHO SHOULD READ THIS GUIDE?
This guide will interest any business that undertakes debt collection activity as either a substantial or a significant part of their business. For example, it will be of most relevance to:
Independent debt collection agencies
Internal debt collection branches of finance companies; and
Internal debt collection branches of retailers who provide credit to consumers
The size of businesses engaging in debt collection differs widely, and compliance measures suitable for a large organisation may not be appropriate for a small business. The guide recognises this, and endeavours to provide compliance measures that can be adapted to suit a variety of different debt collection businesses.
WHAT CONSTITUTES 'UNDUE HARASSMENT OR COERCION'?
There is little guidance for businesses or consumers on conduct that might breach section 60. However, in consultation with stakeholders, ACCC has developed a guideline for industry that details conduct that, in its view, might be at risk of contravening section 60. Businesses should refer to this guideline when developing their compliance program. The guideline is the Debt collection and the Trade Practices Act.
What are the essential elements of compliance strategy?
The Australian Standard on Compliance Programs (AS 3806–1998) sets out the essential elements for an effective compliance strategy, listed as follows:
Identification of compliance issues
Operating procedures for compliance
Complaints handling system
Identification and rectification
Systemic and recurring problems
Education and Training
Visibility and Communication
Monitoring and Assessment
The following explains how a business involved in collecting debts can implement these elements and some practical examples to assist business.
ESTABLISHING AN EFFECTIVE COMPLIANCE SYSTEM
Establish Commitment to Compliance
For compliance with any obligation to be effective, all levels of the organisation must be committed to respecting the prohibition that the law contains, whether the prohibition is in the Trade Practices Act or other legislation. The commitment to compliance and to an appropriate compliance system must be apparent in all levels within the debt collection organisation, starting with the board and the chief executive officer (in the case of a large firm) or the managing director (in the case of a smaller firm). Once this commitment is in place, ultimate responsibility for a breakdown in compliance will rest with upper management. Upper management must be willing to say that ‘the buck stops here’.
The commitment of upper management is demonstrable by:
Making sure that compliance is a standing item for board or board committee meetings (in the case of a large organisation)
Appointing a compliance manager or a senior manager (in the case of a large organisation)
Appointing a manager or supervisor with responsibility for compliance (in the case of a smaller organisation)
Having appropriate compliance procedures in place
Ensuring that these procedures are visible, maintained and well-resourced and
Ensuring that these procedures are well publicised and understood by employees and agents
Allocate resources and authority for compliance
To ensure compliance with section 60, as well as other laws and regulations, the organisation must provide adequate compliance resources. It must ensure that the individual (or unit) responsible for compliance has sufficient authority, recognition and support within the organisation to make compliance a priority and to make it stick.
This means that the organisation must decide to allocate personnel, time, and money to the compliance effort. For example, it should charge a person (or unit) with responsibility for compliance activities. Those people must have sufficient time and training to discharge the compliance functions properly. In addition, the organisation needs to allocate resources to train all staff (not just the compliance managers) about their responsibilities.
Many large financial institutions have a dedicated compliance manager whose job it is to make sure that the organisation complies with relevant laws. In this context, responsibilities would include ensuring that systems are in place to follow ACCC guideline for ongoing training, and for monitoring and reporting on compliance issues. Smaller organisations should have someone whose duties include compliance.
Assign responsibilities for compliance
The necessity for compliance must permeate the consciousness of staff at all levels of the organisation. To this end, all managers must understand, promote, and be responsible for compliance with section 60 insofar as it applies to activities within their day-to-day responsibilities. Managers must be responsible for:
Training staff under their immediate supervision about their responsibilities under section 60; and
Ensuring that relevant compliance procedures are in place and maintained
Identify compliance issues and areas of risk
To ensure that compliance is not left to chance, relevant business units within the organisation should be assessed to identify relevant compliance issues. This includes identifying aspects of current operations and procedures that may be at risk of contravening relevant obligations. This identification process is overseen by those responsible for compliance in the organisation.
For compliance with section 60 of the Trade Practices Act, some issues to consider include these.
Who is responsible for contacting debtors?
How staff is made aware of their responsibilities under section 60?
At what times, and with what frequency, do staff members telephone debtors?
What procedure personnel follow if a request is made that contact not be made at a certain place or time?
Do staff members visit debtors in their homes and, in what circumstances?
What procedures do staff members follow if a debtor requests contact is only made through the debtor’s representative?
Develop Operational and Training Procedures
This is likely to be the largest task involved in developing an effective compliance system. However, once appropriate procedures are in place, ongoing maintenance requires limited additional work.
To ensure that compliance becomes an integral part of normal operations the requirements of section 60 (and other relevant laws) need integration into the organisation’s day-to-day operating procedures. A person who has detailed knowledge of the legislative requirements must be responsible for ensuring that these requirements are built into the organisation’s debt collection practices. The procedures to ensure compliance should be developed and implemented in consultation with staff and (where relevant) third parties, such as major clients.
In considering appropriate operational and training procedures, it is important to recognise that different risk areas may require different compliance approaches. Some risk issues can be best addressed through training staff on appropriate or inappropriate behaviour. Training must be aimed at relevant staff, must be ongoing, and must be tested for understanding.
Many section 60 issues can be traced back to the manner in which contacts with debtors are handled. Staff whose responsibilities include contact with debtors should be given appropriate training on the organisation’s procedures for contacting debtors (in line with ACCC guideline). Training on communication and negotiation skills will be of great assistance. Some further examples of operational procedures relating to training are outlined below.
Staff members require training about their legal compliance responsibilities. The person responsible for compliance should establish and update a register of those trained. Any questions asked during training and the answers given to those questions should be recorded on the register. A training register is a mechanism allowing the organisation to be sure that:
It has trained all staff affected by the law; and
Those trained actually understood the training.
Distributing a training review form to each staff member undergoing training helps to improve staff understanding of the compliance message. Such a form allows the trainee to evaluate the training and record their views as to the clarity of the training. The trainer should review all forms and the training program where appropriate.
In addition, the compliance manager needs to establish procedures that advise of any changes to the relevant law. Once the impact of the legal changes upon the organisation’s operations has been assessed, the compliance manager must ensure that all affected staff are re-trained or otherwise informed. The training register needs updating to reflect the re-training and again, questions asked and answered should be recorded.
Other risk issues may be better addressed by developing appropriate procedural systems.
The risk of misleading or deceptive communication can be limited by implementing a procedure for standard form letters and other communications checked by a person with trade practices expertise.
To ensure that contacts with debtors if outside reasonable hours only in appropriate circumstances, an organisation can consider implementing a checklist completed before making such contacts.
Any procedural manuals should be consistent with ACCC’s guideline on Debt collection and the Trade Practices Act.
There are a number of other issues that should be addressed when developing appropriate operational procedures.
IMPLEMENTATION AND ENFORCEMENT MECHANISMS
Once the compliance system has been established, it should be consistently enforced with appropriate remedial measures. Establishing a system requires the business to decide on the measures that it implements if an employee or an agent is in breach of compliance obligations. Effective sanctions or remedial measures can ensure that the compliance system retains credibility and effectiveness. As discussed above, continuous training should take place where appropriate.
An agent of Debt Collectors Pty Ltd collects a debt by ringing the debtor at home at 11.00 p.m. every night for three weeks. Such conduct is likely to amount to undue harassment. Not only will it probably breach section 60, it breaches Debt Collector Pty Ltd’s clear company policy not to telephone debtors after 9.00 p.m. at night.
An appropriate response to such a contravention might be, first, to explain the error and provide re-training. Secondly, the agent could be warned that repeat conduct can result in a reduction in commission or, if the behaviour continues, termination of the agency contract.
Accurate and up-to-date records of the organisation’s compliance activities are needed to assist in the monitoring and review process. An organisation should develop appropriate record keeping systems and procedures. Establishing and maintaining complaints register should keep records of complaints about employee or agent’s behaviour. Keeping such a register allows the organisation to pinpoint compliance ‘trouble spots’ in its operating procedures. A training register is an effective mechanism for keeping track of the organisation’s compliance training program. Additionally, businesses should maintain accurate records of contacts with debtors, including times and dates of all contacts.
COMPLAINTS HANDLING SYSTEMS
It is essential to have a visible and accessible complaint handling and monitoring system within the organisation, which records complaints from staff, customers, competitors, financial counsellors, regulatory authorities, industry complaint handling committees and consumer organisations. Such a system can readily identify a compliance failure that might otherwise go undetected. An effective system which records and identifies complaints can act as ‘early warning’ device regarding conduct which may ultimately be drawn to the attention of regulatory authorities or cause harm or damage to consumers. Instituting such a system is preferable to defending costly litigation. The Australian Standard on Complaints Handling (AS 4269–1995) sets down some criteria for effective complaints handling.
In the case of small firms a sophisticated consumer complaints system may not be necessary. Nevertheless, an appropriate person should be nominated to handle complaints and to keep a log of complaints and responses.
IDENTIFICATION AND RECTIFICATION
All compliance failures, once recorded, should be classified and analysed so that any problems can be identified and rectified as soon, and as effectively, as possible. In particular, systemic and recurring problems are likely to carry significant risks for the organisation and can be more difficult to identify. Such problems can escalate over time and are more likely to attract the attention of regulatory authorities.
Approaching the debtor’s children in an attempt to enforce payment of a debt may amount to harassment, particularly where the collector makes threats or misrepresentations to the child about the consequences of the parent’s non-payment. If an organisation’s employees engage in this type of conduct on a regular basis, the organisation is vulnerable to prosecution for breach of section 60. The organisation should take immediate measures to make it clear that such conduct breaches its compliance policy that there are sanctions for such conduct, and that repeat offenders will be dealt with expeditiously.
Operational procedures should have a mechanism for identifying and addressing systemic problems, as well as general compliance issues.
Those responsible for compliance can regularly review complaints data and other compliance information to ensure that appropriate rectification action is taken, and that trends or issues are recognised and dealt with as they arise.
KEEPING ABREAST OF CHANGES TO THE LAW
Legislation and its interpretation can change rapidly. Organisations therefore need to have systems, which enable them to receive timely and accurate advice of relevant changes to laws and codes.
Systems to provide advice on changes to the law can incorporate:
Making arrangements with legal advisers for regular updates
Being on relevant regulators’ mailing lists
Becoming a member of industry associations (such as the Institute of Mercantile Agents or the Australian Collectors’ Association)
Subscribing to relevant information services and
Attending industry forums and seminars
Internal reporting arrangements must be in place to ensure that:
The board and senior management are kept regularly informed of compliance activities
All actual or potential compliance failures are being reported and rectified in an appropriate way and
Systemic and recurring problems of non-compliance are reported to those within the organisation with sufficient authority to correct them.
A report on compliance issues and activities can become a regular item on board meeting agendas, or in an internal newsletter. In smaller businesses, the managing director could be provided with a regular briefing.
Document Compliance Policies and System
The Australian Standard suggests that an organisation should set out a compliance policy that clearly states the organisation’s commitment. The policy should set out exactly how that commitment is to be carried out.
The operational procedures to ensure compliance (as developed in step 5) should be documented. This will form the compliance system (or compliance program) for the organisation.
The organisation should establish appropriate requirements and procedures to ensure that its agents understand the company’s commitment to compliance and the consequences of failing to meet relevant obligations.
MAINTAINING A COMPLIANCE SYSTEM
Once appropriate operational procedures have been developed and implemented, your compliance system needs regular maintenance to ensure that it does not become obsolete or ineffective. This section outlines the tasks that are needed to maintain an effective system.
Compliance with ACCC guideline and with relevant laws should be regularly and randomly audited. Indicators of the level of compliance (and thus the effectiveness of the system) can be gauged through:
The quantity of complaints received by the organisation
The quantity of complaints received by ACCC or financial counsellors and
The number of breaches of the guideline or law detected.
Any reports from regulatory or industry bodies of wrongdoing by the organisation’s debt collectors should be investigated thoroughly immediately, and rectified.
For a compliance system to remain effective, it should be reviewed on an ongoing basis. Both the objectives of the system and the criteria against which its effectiveness is assessed should be re-examined at regular intervals.
In order to maintain an effective compliance system the organisation should:
Keep abreast of compliance best practices (both locally and overseas)
Foster a compliance culture within the organisation
Employ people who have experience in and commitment to the continuous improvement of compliance
Undertake specific training and retraining of staff
Encourage innovation in compliance development, procedures and processes and
Recognise exemplary compliance behaviour by teams, work units, and individuals within the organisation
An independent review of the compliance system, particularly for a large company, by an appropriately qualified compliance expert every one or two years helps to ensure that the compliance system remains effective.
There should be ongoing formal and informal liaison by the organisation and its compliance professionals with regulatory bodies (such as ACCC) as well as industry associations. This helps the organisation to be aware of current problem areas and effective compliance methods. Depending on the size of the business, it may be useful to hold regular meetings with:
State, Territory and federal regulatory authorities
Relevant industry associations and
Consumer and community organisations
Alternatively, it may be more appropriate to maintain informal regular contact with relevant organisations. Relevant information, such as industry and regulatory newsletters and publications, should also be readily available to those responsible for the organisation’s compliance efforts.
The performance of the compliance program should be reported as specified in the compliance procedures. In the case of large organisations, performance should be reported to the board and chief executive officer. In the case of small organisations, a report to the managing director is appropriate.
Is compliance a standing item at board meetings (in large organisations)?
Yes / No
Has the (large) organisation appointed a compliance manager or a senior manager with overall responsibility for compliance?
Yes / No
Has the (small) organisation appointed a manager or supervisor with responsibility for compliance?
Yes / No
Are procedures in place to check for legislative, Commission guideline and industry code requirements, and new developments?
Yes / No
Do staff and distributors understand the compliance procedures?
Yes / No
RESOURCES AND AUTHORITY
Has the organisation committed adequate resources to compliance?
Yes / No
In large organisations, is there an ‘in-house’ expert on the requirements of s. 60, the ACCC’s guideline on Debt collection and the Trade Practices Act
, and other relevant laws and codes of conduct?
Yes / No
In smaller organisations, there is ‘in-house’ expert, or does the organisation have access to quick and reliable external advice?
Yes / No
Is the organisation committed to ensuring that that person’s regulatory knowledge is up to date?
Yes / No
Do those responsible for compliance have adequate authority to ensure compliance?
Yes / No
Are all managers aware of the compliance responsibilities in their business unit?
Yes / No
Is all staff in the business unit aware of their compliance responsibilities?
Yes / No
IDENTIFICATION OF COMPLIANCE ISSUES
Has the organisation conducted an audit of its entire operations to ensure that compliance issues and risk areas of operation have been identified and appropriate mechanisms put in place to ensure compliance?
Yes / No
Is the audit undertaken regularly?
Yes / No
OPERATIONAL PROCEDURES FOR COMPLIANCE
Has the organisation developed operational and training procedures to address all Trade Practices Act risks arising from their operations?
Yes / No
SYSTEM FOR ENFORCEMENT AND REMEDIAL ACTION
Has the organisation established appropriate procedures for enforcement and remedial action for non-compliance?
Yes / No
COMPLAINTS HANDLING SYSTEM
Does the organisation have a visible and accessible complaints handling system to record complaints from a variety of sources?
Yes / No
Does the company keep registers in which to record complaints, compliance failures, and other compliance information?
Yes / No
IDENTIFICATION AND RECTIFICATION
Does the company have a system to identify and classify compliance failures so that all problems, including systemic and recurring problems, can be rectified?
Yes / No
Are compliance problems reported to senior management?
Yes / No
DOCUMENTATION OF COMPLIANCE POLICY AND SYSTEM
Has the organisation set out a clear policy to all staff and agents outlining its commitment to compliance and how compliance will be carried out?
Yes / No
Has the organisation documented its compliance system?
Yes / No
Has the compliance system been developed in consultation with staff and distributors?
Yes / No
Does the organisation have procedures in place to ensure compliance by agents?
Yes / No
Does the organisation have regular spot audits for compliance with legal obligations and ACCC guideline?
Yes / No
Does the organisation review its compliance system regularly?
Yes / No
Does the organisation have procedures in place to ensure continuous improvement in compliance?
Yes / No
Does the organisation liaise regularly with relevant organisations, including regulators and consumer representatives?
Yes / No
Is there regular reporting on compliance to the board/chief executive officer/managing director?
Yes / No
Source: Australian Competition & Consumer Commission
BAD DEBTS CAN RUIN YOUR BUSINESS
The money owing to a business for goods or services sold to customers is a critical asset in the balance sheet and is critical to the success of the business. Economic cycles can make affect the cash flows of businesses and a business can protect itself against non-payment by its customers by implementing:
Strategic credit management policies and procedures;
Effective recovery processes, and
Customers who buy goods and services do not normally warn suppliers of any financial difficulty, as continued supply (and cash flow) is essential for them to avoid closure. Credit insurance for domestic and international transactions is one preventative measure available to business if the credit management and recovery processes are not successful.
STRATEGIC CREDIT MANAGEMENT
Good managers do not make decisions on credit without reasoning and sound research on the proposed customer. It is inappropriate and lacking in management skills to rely on instinct when making credit decisions. Management must plan and implement strategies that ensure the business has:
All its documents up to date, such as, terms, conditions, security agreements, credit applications and guarantees;
Individually designed credit policy;
Assessment of recoverability of debt, and
An efficient method to recover outstanding accounts.
Management can make more secure financial projections by having these simple measures in place.
EFFECTIVE RECOVERY PROCESSES
The recovery process does not begin when the debt is due and owing, but rather before a business chooses to make a credit decision after utilising its credit management policies and procedures. The recovery processes is collaboration between the business and its lawyers who should both:
Assess the state of the debt;
Authorise and issue demands, and
Train the business’ staff on credit management techniques and debt recovery procedures.
These underlying processes support credit decisions with a degree of payment protection but are not enough to provide a multitude of bottom line benefits.
Credit insurance relies on both the preceding factors and gives the business the opportunity to:
Reduce bad debt reserves;
Expand sales with safety;
Secure better borrowing terms, and
Replace non-deductible bad debt provisions with tax-deductible premiums.
By reducing risk, credit insurance enables the business to increase facilities to existing customers, safely expand credit to new, unknown accounts, or enter new domestic and international markets with confidence.
WHAT CAN AACAD$® RECOVERIES DO FOR THE BUSINESS?
It can assess the risk exposure, and for a fixed fee arrangement, will:
Prepare the necessary credit management documentation for the business;
Assess the state of the debtors and make recommendations;
Prepare and issue demands on debtors, and
Provide access to its legal and non-legal advisors to support the business’ staff
BUSINESS, WORK & PRESSURES
Business owners are increasingly coming under more work pressure as they seek to meet the statutory compliance of dealing with corporate and taxation requirements and meeting the financial requirements of the business and ensuring that cash inflows are strong, steady and secure enough to meet outgoings, create enough capital for future growth and provide the owners with a good lifestyle.
Factors affecting poor cash flows can be business and economic cycles that lead to low sales, high cost structures, insufficient or poor control of debtors, or poor management skills by managers. Owners or managers can easily deal with each of these factors and improve cash flows and the business bottom line.
It is inevitable that any business selling goods or services on credit will incur bad debts at some point, however good effective measures can neutralise or limit the danger of substantial losses occurring to the business.
aacad$ Recoveries in collaboration with Behan Legal have good solid experience in creating a management solution that deals with this potential problem, and as part of their solution can assist to:
Ensure that correct and relevant terms and conditions are in place embedded in the management system of the business;
Design an appropriate system that assists the business in its collection process, and
Provide ongoing legal and other related services as part of the collection process.
TIME IS OF THE ESSENCE
Most unpaid invoices become bad debts when the business allows the debt to become older each day, which makes it easier for the debtor not to pay the invoice. Fast debt recovery is vital in every situation to ensure the success of the collection process. The management solution integrates immediate notification for legal action, either through Behan Legal or aacad$ Recoveries that provides recovery services.
INCREASE PROFIT & SUSTAINABILITY
The easiest way to increase profits is to reduce your bad debts. Successful debt recovery depends on managing the debt, debtor, and available information. A significant cause of poor debt management is the lack of attention given to records, documents, and debtor information. Simple debt management controls can improve recovery by looking at a few issues without incurring unnecessary costs. Focus on these areas before you outsource your debt recovery:
KEEP EFFECTIVE RECORDS & DOCUMENTS
Maintain an effective system of keeping all documents that evidence (or prove) the debt, such as written agreements, orders, invoices, promises to pay, dishonoured cheques, credit applications, and correspondence with the debtor, etc.
DOCUMENT (DEBT) REVIEW
Make these documents and information available to aacad$ Recoveries for review and ensure that the debt is in fact due. In most cases, this is obvious-the debtor has not paid by the due date, but occasionally, the debt is not actually due until a specific event occurs and there is no legal obligation on the debtor to pay until that event occurs.
CORRECT AMOUNT DUE
Know exactly how much is outstanding as at the date you provide instructions to recover the debt. Being able to state the correct amount shows credibility and discredits any suggestion by a debtor that the amount you are claiming is wrong. Knowing the correct amount, allows you to claim penalty interest from the debtor without fearing the debtor can dispute your claim for interest. If there is no agreement in place to pay interest, courts allow you to claim interest (normally lower than the statutory amount) from the date the cause of action arose until judgment, and a higher rate from the date of judgment. By claiming the correct amount, the debtor cannot set aside any judgment, or a claim for interest, alleging the amount was incorrect and you had no right to judgment.
Maintain and provide the current and complete names and addresses of each debtor. This information is vital to correctly ascertain the identity of the debtor, as a claim can fail if you provide wrong information. By providing as much information as possible at the beginning, it will assist in enforcing (or recovering) the money owing. Post Office Box addresses are useless if it is necessary to serve any demand on an individual debtor. You should be wary of dealing with those who only provide this type of address.
RETAIN AACAD$ RECOVERIES
Successful recovery is all in the timing. The faster you retain aacad$ Recoveries, the better the chance of actual recovery! aacad$ Recoveries can make demands on debtors for the payment of your debts after receiving your request and information.
RECEIVING PART PAYMENTS FROM DEBTORS
“Please find our cheque for your invoice less a 20% discount due to the problems we suffered when you provided your goods...”
Issues to consider:
Have you had such an experience and what action did you, or should you adopt?
Do you accept the payment and forego the balance?
Do you return the cheque and insist on payment of the whole amount?
Do you accept the payment, and try to recover the balance?
By accepting a cheque for less than the full amount due, do you lose your claim for the balance? Generally, if a creditor accepts the reduced payment in settlement, it foregoes the balance especially if there is evidence both parties intended and agreed to the arrangement. There is no hard, fast rule on what is “evidence”, and cases often depend on individual circumstances. As a result, there is a risk that by accepting a lesser payment, you may forego the balance.
Crucial factors to take into account are of course, the amount involved and the strength of arguments about the balance.
The “safest” path is not to bank the cheque. However, most people want to bank the cheque quickly either because they want cash, fear the debtor cannot pay in the near future or that arguing will involve further delay. If one decides to bank the cheque or keep the payment, it is critical to write immediately to the debtor, stating you do not accept it in full settlement and require payment of the balance. In this way, the creditor has a good argument that there is no agreement to accept the reduced payment in full settlement.
A disadvantage of informing the debtor immediately is that, it may stop payment on the cheque. Therefore, some creditors delay informing the debtor about their intention to accept it in part payment until clearance of the cheque or payment received in their account. This is, however, a little riskier. Much depends on the wording of the letter accompanying the cheque, however, and this can be a trap for the unwary.
Creditors can anticipate this scenario by including relevant provisions in their terms of business.
Traditionally, accepting the reduced payment without protest and not pursuing the balance for some time is evidence of an agreement to accept the lower amount in full settlement.
SIMPLE BUSINESS REQUIREMENTS MINIMIZE
In this economic climate, everyone must concentrate on the cash position of the business. By implementing good business practices and some simple business documents business owners can minimise bad debts and collect those debts much faster.
ORDERS & INVOICES
Avoid disputes, which can severely delay payment, by having written and signed orders from customers. Your order forms must reflect the terms and conditions of business. If you do not use the appropriate order, then on receipt of a customer’s order, it is critical that you confirm in writing acceptance of the order only based on your terms and conditions of business.
It is not sufficient to refer to your terms and conditions of business in the delivery notes or invoices as the law treats those documents as coming into existence after entering the contract. Therefore, they have no, or very limited, legal effect.
Your credit terms should clearly state your terms and conditions of business and appear on the face of your order forms and invoices. Sometimes, you may require payment in advance or credit insurance, and where supplying to a customer abroad, a letter of credit or pre-payment.
TERMS & CONDITIONS
Terms and conditions are critical in positioning the business for success. There are many businesses without terms and conditions, or use terms and conditions, which are out-dated or are unenforceable.
DEFECTS & COMPLAINTS
Often debtors raise spurious complaints to delay payment. The terms and conditions of business should stipulate that the customer must make the complaint within a limited period and in writing. Keep note of what you and your customer say in conversations concerning complaints and prepare a detailed note of meetings. In the event of Court proceedings, your customer’s lawyers and the Court are entitled to see these notes, notes of internal meetings and discussions, so you must take care with these documents.
Terms and conditions of business may specify the interest that is chargeable if the customer does not pay within the stipulated credit terms, which should be higher than that which the customer pays on its own borrowings, so that the customer has an incentive to pay rather than treat you as its “banker.”
RETENTION OF TITLE & SECURITY AGREEMENTS
The objective is to enable you to recover your goods immediately rather than be an unsecured creditor in a customers’ insolvency. This area of law is complex and it is critical to maintain a proper retention of title clause, and need to take into account your particular business and the way in which you operate. You must consider the requirements of the Personal Property Securities Act 2010 to ensure you obtain priority from competing creditors.
ALTERATION OF TERMS
Customers who attempt to delay payment will sometimes allege that your terms and conditions of business, or part of them, did not apply because of discussions or actions that varied the terms. Your terms and conditions should make it clear that only a director of your company has authority and modified in writing.