Why It's Never a Good Idea to Let an Outstanding Debt Lapse

If you're in business for yourself, you know that one of the big challenges is the fact that you need to extend credit to customers as an expected part of the trading process. Normally, customers will pay and largely on time, but occasionally an issue will develop. You shouldn't just let this brew, as it were, without taking action as you may have to consider the statute of limitations. What should you be worried about here?

Different Rules

The different Australian states and territories have differing rules and regulations when it comes to claiming any debt. There are particular elements to bear in mind as to whether you can actually claim against an outstanding debt, if it happens to be particularly aged.

Why You Need an Acknowledgement

Firstly, it may well be necessary for the customer to have acknowledged that they owe the money to you, as this act can in some cases trigger or extend the statute of limitations. You will need to collect such an acknowledgement in writing if you're going to use it as part of any collection process and the customer must be aware that they still haven't settled the debt.

What You May Need

You will need a contract in order to have the best chance of pursuing a stubborn debt. It's likely that the statute of limitation will begin as soon as the debt becomes due. This covers a variety of different situations such as lapsed instalment payments, or a failure to raise a payment against an individual invoice or contract. If the customer does subsequently acknowledge that the debt exists and has been paid, this can extend any limitation period. Likewise, if they only pay part of the debt, this keeps the situation active from this perspective.

Statutory Deadlines

Any statute of limitations will of course prevent you from collecting the money due to you if you don't take action within a specified amount of time. However, this is usually at least three years and some debts that are associated with a court judgement can last for at least twice that long before becoming void.

Options after the Deadline

You may have a valid reason for not taking up the lapsed payment, or may have simply forgotten about it. In this case, you may have restricted options when it comes to pursuing the situation after the limitation period has ended. Some jurisdictions will completely extinguish any debt at that time, while others may allow you to look at the options, but you can expect to be quite restricted.

Getting Support

In almost every situation it's best to pursue the debt well in advance of a statute of limitations deadline. If your debt is particularly stubborn, then it's a good idea to have a word with an experienced debt collection agency to really get the ball rolling.