Debt collection: when should a business bring in a collection agency?

Unpaid invoices are one of the most common threats to cash flow for Australian businesses. Most company owners will try to handle overdue invoices internally with a friendly reminder, phone calls, and revised payment terms. That works often enough. But when it stops working, the cost of dealing with unpaid debts yourself can quickly outweigh the cost of bringing in a specialist debt collection agency.

This article covers the scenarios where internal efforts fall short, the warning signs that signal it’s time to escalate, and how a debt collection agency can recover what you’re owed more effectively than your own team.

Why speed matters when invoices go unpaid

The relationship between time and recovery rates is steep. Commercial debts in Australia have a 50-75% overall collection success rate, with odds improving significantly if pursued early. Every week you delay the decision to escalate, the total amount you can expect to recover shrinks.

For SMEs operating on tight margins, those numbers should shape how quickly you decide to act. Australian SMEs currently report an average DSO of 45 to 65 days, meaning most businesses wait well beyond standard payment terms to actually receive the money they're owed. Around 42% of B2B invoices are overdue at any given time, and roughly 6% end up written off entirely. Late fees and interest charges may offset some of the damage, but they rarely compensate for the full loss. A clear escalation plan is a basic part of credit management, not something to figure out after the bills start piling up.

Five scenarios where a debt collection agency makes sense

Hiring a debt collection agency is not about giving up on a customer. It is a commercial decision based on where your time and money are best spent. There are specific situations where an external agency will recover more, faster, and at a lower total cost than your internal team. Here are the most common ones.

The debtor has gone silent

You’ve sent multiple reminders, left voicemails, and emailed the debtor’s accounts team. Nothing comes back. When a person stops responding altogether, continuing to chase them internally is unlikely to produce a result. A debt collection agency brings authority that internal follow-ups lack. The involvement of a third party signals that the matter has been escalated beyond a routine accounts conversation. For many debtors, receiving a formal letter of demand from a debt collector is enough to prompt payment.

Debt collection agencies have established processes for locating debtors who have changed address or shut down a business entity. If your customer has become unreachable, an agency has resources and investigative methods that most in-house accounts teams do not.

Your team is losing productive time on difficult accounts

Every hour your credit controller spends chasing a person who owes money is an hour not spent managing current accounts, onboarding new clients, or processing transactions. When overdue invoices start consuming a disproportionate share of your team’s week, the hidden cost is real. Staff energy gets directed at the least productive work. Outsourcing the most difficult accounts to a debt collection agency lets your people focus on income-generating activities that support future growth.

The debtor disputes the amount or denies the debt

Disputed invoices require careful handling. Under the ACCC/ASIC Debt Collection Guideline, collection action on a disputed amount should be paused while the matter is investigated. If the debtor claims the goods were faulty, the service was not delivered, or the contract terms were different, your internal team may not be equipped to manage the process without creating legal risk. In these cases, seeking legal advice early can prevent costly missteps.

A professional debt collection agency understands these regulatory obligations and local laws. It can investigate the dispute, communicate with the debtor within the legal framework, and continue to pursue the undisputed portion of the debt while the contested amount is resolved separately.

The customer has become insolvent or ceased trading

Business insolvencies hit record levels recently, with 1,448 recorded in March 2025 alone. ATO debts drove 33.6% of those cases. When a debtor enters administration or shuts down, recovering your money means navigating insolvency law and lodging proofs of debt with the appointed trustee. For more on how insolvency trends are affecting creditors, see the Atradius Insolvency Outlook. A debt collection agency with experience in these matters can act on your behalf to maximise whatever recovery is possible from the remaining assets.

Overdue invoices are growing in number or value

One late payment is manageable. Ten is a pattern. If your accounts receivable ageing report shows a growing volume of unpaid bills past 60 or 90 days, internal follow-up alone is not going to fix the problem. A debt collection agency can take on these accounts in bulk, apply structured recovery processes, and prevent the backlog from growing further.

Small businesses hold $35.9 billion of the ATO’s collectable debt, representing 66% of the total. The ATO issued 84,529 director penalty notices during 2024–25 for $5.5 billion in liabilities. When a company is dealing with tax debts and other debts from trade creditors at the same time, the pressure on cash flow becomes unmanageable. Acting early on overdue receivables gives your business more room to handle these obligations and plan for the future.

How debt collection agencies work

A debt collection agency acts on your behalf to recover money owed by your customers. The process is structured and regulated under Australian law.

It starts with a formal letter of demand sent to the debtor, requesting payment by a specific date. This letter carries more weight than an internal reminder because it signals third-party involvement. Many debtors settle at this stage without further collection action needed.

If the debtor does not respond, the agency will follow up by phone and in writing. Debt collectors are bound by strict rules under the ACCC/ASIC Debt Collection Guideline. They cannot contact debtors at unreasonable times, must limit how often they make contact, and are prohibited from using threats or misleading tactics.

If the debtor’s financial situation makes full repayment difficult, the agency may negotiate a new arrangement such as a payment plan or a lump sum settlement. A financial counsellor can also help debtors who are struggling with multiple unpaid debts to get independent advice on managing their obligations.

If informal methods fail, the agency can recommend legal action. This may involve filing a Statement of Claim in court. If the debtor does not file a defence, the court can grant a default court judgment. Enforcement options then include garnishee orders on wages or bank accounts and warrants for seizure and sale of property. Creditors should understand that legal proceedings are typically a last resort, used only after all other avenues have been exhausted.

In terms of costs, agencies typically charge a commission of 10% to 30% of the recovered amount. Many operate on a no-win, no-fee basis, meaning you only pay when they successfully collect.

Overall success rates range from 50% to 75%, with B2B debts seeing recovery rates between 30% and 70%, depending on the age and complexity of the debt. For most businesses, engaging an agency means invoices get paid faster than they would through internal efforts alone.

How soon should you escalate?

A common benchmark is to consider external debt collection after 60 to 90 days of non-payment, especially if multiple reminders have gone unanswered. Average payment terms sit at 37 days. An invoice that is 90 days overdue is already three times past its expected due date. Waiting longer only reduces your chances.

For larger debts, acting sooner is often justified. The cost of engaging a debt collection agency is almost always lower than the cost of writing off a significant receivable. The key is to decide on a clear policy: once an account hits a defined threshold of time or value, it moves to an external agency without delay.

Keep in mind the limitation period for court action. In most states, you have six years from the date the debt became due or was last acknowledged. The Northern Territory has a shorter period of three years. Once this window closes, the debt becomes statute-barred and you lose the option of legal recovery entirely. If you are unsure about limitation periods or your rights as a creditor, seek legal advice before the deadline passes.

What to prepare before engaging an agency

A debt collection agency can only move as fast as the information you give them. Before handing an account over, gather the following:

• A copy of the original invoice and the contract or purchase order that supports it
• A complete record of all communication with the debtor, including emails, letters, and phone call notes
• A log of every payment reminder and follow-up attempt with dates
• Details of any partial payments already received and the remaining amount owed
• Confirmation of whether any part of the debt is disputed by the debtor
• The debtor’s contact details, including any updated addresses or phone numbers you have on file

Strong documentation speeds up the recovery process and strengthens your position if the matter proceeds to court. Use this as an opportunity to review your credit policies as well. Conducting credit checks on new customers, setting clear payment terms upfront, and automating invoice reminders can all reduce the volume of overdue invoices that reach the collection stage. For businesses looking to protect their accounts receivable more broadly, trade credit insurance can provide an added layer of protection against non-payment.

Protect your cash flow with Atradius Collections

Atradius Collections is a global leader in debt collection services, operating across more than 40 countries with a team of experienced recovery specialists. Our local team understands the regulatory environment, the commercial culture, and the realities of B2B debt recovery. Preserving client relationships matters to us. Our debt collectors are trained to handle every case professionally so that your business reputation stays intact.

Our online platform, Collect@Net, lets you upload unpaid invoices, track collection progress in real time, and receive your money as soon as it is recovered. You do not need to be an Atradius credit insurance customer to use our debt collection services.

If overdue invoices are putting pressure on your cash flow, get in touch with Atradius Collections to find out how we can help you recover what you’re owed. Contact us to get started.