Michelle Cirson (00:01.058)
Hello, welcome to the Subbies' Toolbox Podcast. I'm your host, Michelle Cirson construction adjudicator, lawyer, and the founder of Subvies Toolbox. Today on my podcast, I want to talk to you about why using a debt collector can do more harm than good if you have a construction business. So, for those of you out there who've been using debt collectors, many of you will know that when you sign up to use a debt collector, they will take a percentage of what they recover. So
Usually we see those agreements being anywhere between 18 and 25% of what you're owed. So it's a big chunk of the amount of money that you are chasing to use a debt collector. And I wanted to explain to you what they actually do so that you can have a good gauge on whether or not you want to pay a debt collector 25% or whether you want to implement your own systems so that you never need to use a debt collector and you actually have a better chance of getting paid. Now debt collectors.
Work on a model where they're typically not law firms. That's fine, you don't have to be a law firm to collect money in construction. In fact, subcontractors can collect money themselves quite simply just by using special laws that are specific to construction to help you get paid. So I'll circle back and explain that to you shortly, but a debt collector effectively will grab hold of the details of the debt. Sometimes they don't even need any substantiation of the debt.
And in fact, many times I've seen debt collectors demanding money that has never even been invoiced before. They will send a letter of demand to the person who owes the money and then they will be a serial pest. Like they will grab somebody's phone number and they will call four or five times a day chasing the debt. That can be incredibly painful and annoying. But the real reason that people get concerned about debt collectors is because they will typically do things that will have an impact on your credit.
So the first thing is they may report you to credit or watch or something like that so that your credit rating doesn't come back, right? They also will affiliate with law firms who can commence a court proceeding in certain circumstances. Now, a debt collector is working on the basis that they're going to get between 18 and 20% of what you're owed. So if you're owed $5,000, how much work do you think that they're going to do for that money? They're not going to go and commence a court proceeding.
Michelle Cirson (02:24.706)
Very unlikely that they would. And for amounts less than $10,000, it would be difficult for them to justify the court filing fee, which sometimes can be as much as $1,800 to go and file in the court. So that's the yardstick that they're working on for their own piece of the pie. And those agreements that your debt collector will have will say that they have the right to work out what's a fair and reasonable settlement. And their yardstick on what is fair and reasonable will be how much work have I done?
How likely are we to get this money in the door? And so, therefore, will it be worth my time chasing it knowing I'm only going to get 18 to 25% of the debt? So, debt collectors typically will have an expiry date, and it's not too difficult for well-seasoned commercial people to bat them back from the builders' camp. Over the years, we had many, many debt collectors who would try it on with us when I worked for various builders, and it wasn't too difficult to convince them that we weren't going to.
Let them make any money in that collection process. So the game went from do I owe the subcontractor the money to can I just make it not viable for this debt collector to chase this cash? And knowing that the subcontractor, if they're unsuccessful in using the debt collector, will be licking their wounds, may just give up on the debt. And then if the subcontractor then goes and tries to use security of payment laws to get paid, and they are successful in being paid.
Many times there can be clauses in the contract with the debt collector saying that if they get paid in any other way, that the amount is still owed to the debt collector, the 18 to 25%, even though it wasn't the debt collector's efforts that resulted in the subcontractor being paid. So you can see by and large, I'm not a fan of debt collectors. The other reason I'm not a fan of debt collectors is because they will usually bombard the debtor with
re-supplying copies of the invoice. And if you are in the construction industry, you have special laws to get you paid. And that regime requires you to give one invoice per reference date under your construction contract. So if you have a debt collector who goes out there trigger happy resending invoices 10, 15 times, it makes it very difficult for an actual construction lawyer to come in
Michelle Cirson (04:48.352)
And grab your situation and still have a reference date and a way to get you paid. So let me just circle back to whether or not debt collectors will start suing you. A debt collector typically, most of the debt collecting firms, will have an affiliate with a law firm, but they won't be a law firm themselves. So they're not supposed to be able to go and commence court proceedings on your behalf because that would be practicing law or representing you without a law firm or a law license.
That's why they affiliate with law firms who will do bulk applications for debt recovery like this. And those law firms usually train their juniors with those matters. So previously when I've worked for law firms in the past, if the law firm was owed money, the junior lawyers would practice on trying to bring money in for the firm. So old debts and things like that.
So you usually see that they are cookie-cutter pleadings that are just, you know, rinse, repeat, change the parties out. There's not a lot of intellectual thought behind what the application is to the court. And so where there are defenses that you might have, the real problem for you is not whether or not you could win. The real the real problem for you is how much is it going to cost me to be in court to dispute something like this? Now, builders have the benefit of an in-house
legal counsel or at least somebody in the building company that is more commercially astute than the average employee. Subcontractors often don't have those in-house. So it wouldn't possibly have occurred to you that even if your debt collector does find a way to start suing your builder, that they might just tie them up in litigation until the debt collector goes, the cost benefit here is just not there. Like it's not viable for us to litigate for this long, and then have to put in all of these
Further documents into the court. There's also the chance that they could get a cost order against them if they lose. So you could be taken down a path where your debt collector puts you on the conveyor where you start suing someone, and then the builder won't release you from that lawsuit unless you pay them back their legal fees. So you can imagine how disenchanting and disheartening it would be for you to be owed money for the builders who have let the debt collector.
Michelle Cirson (07:11.682)
Harass them and harass them and harass them, let the debt collector commence proceedings, and then if the builder has an in-house lawyer, run rings around that debt collector's law firm, make it not cost effective for them to participate in that process in trying to get you back your debt so they can have 18 to 25%. And then effectively, if your case never had merits to begin with, which is often the case because the debt collectors would not assess.
The merits of the case, they would just start being a serial pest and sending letters of demand. And then once the law firm that is affiliated with the case effectively goes and commences proceedings, the builder might say, I'm not letting you out of this now until you pay my legal fees, which could be well and truly more than the debt that you're chasing. So, caution against using debt collectors. Now that
That commentary that I've just given you is general, it doesn't specifically relate to any one particular debt collecting firm. And there is a time and a place for using a debt collector. And for me, it's when the amount that you're chasing is less than $4,000. That's because you can't give a statutory demand for an amount less than $4,000. At the time that I'm recording this podcast, the minimum amount is $4,000.
And a letter of demand might get you there, and typically it may not be cost-effective unless you know how to represent yourself through adjudication, it may not be cost-effective for you to use the security of payment laws to get paid. Now, the one way that it is almost always cost-effective for you to self-represent and use adjudication to get paid is if you have an accounts receivable escalation procedure that is compliant with security of payment laws.
And I bring this up because I met with a subcontractor last week who's invoicing between 150 and 200 clients a week. And they're in Victoria. So as I'm recording this, at the time I'm recording this in June 2026, in April 2026, Victoria just had an update to their security of payment laws. And what the subcontractor said to me was, our account's receivable escalation procedure basically results in us giving a letter of demand. And we've got a template for that.
Michelle Cirson (09:23.458)
And I said to them, look, I don't mean to be negative, but that's probably great for the builder because you haven't worked out how to get paid yet. So when I was in the builder's camp, if I got a letter of demand from a subcontractor, I would be like, fantastic, let's keep talking to them about this letter of demand in these half-baked letters that we'll send back, keep them in a letter war, in a holding pattern, so that they run out of time to use the regime that will actually get them paid.
So, those are the strategies that upstream parties will use to delay you so that you don't actually use the regime that's designed to get you paid. Now, if I was given a payment claim with the endorsement on it that complied with the security of payment legislation, suddenly I was awake. Suddenly I would go, okay, we've got someone who's worked this out now, we're gonna have to give them a proper payment schedule, or we could end up with a statutory debt on our hands. So in Australia, we have special laws to get you paid. They're called security of payment laws.
And in every state and territory, there are different versions of what's called security payment laws. In Northern Territory, it's called the Construction Contracts Act. And in Queensland, it's called the Building Industry Fairness Act, BIF Act for short, and I'm abbreviating here those full names of the legislation. I'm not rattling off off the top of my head, but in all of the other states and territories, it's a variation of the Building and Construction Industry Security or Payment Act.
So, in terms of those laws, they all start with a payment claim, and your payment claim needs to comply with the security of payment laws. And what this particular subcontractor had said to me was, no, we know that in order to have a valid payment claim, we have to put the endorsement on it and it has to be a tax invoice. Well, that's an urban legend. That's an urban myth. That is not actually what you need to do. And in Victoria, where the legislation has just changed.
Once you give a payment claim after the reference date, it is deemed to have been received on the following reference date. So, and the reference date, just for context, is the date that you're allowed to put your payment claim in under your contract. And if your contract doesn't have a date, it's the last calendar day of the month. So the the law effectively steps in to say at least once a month you can give an invoice. Now
Michelle Cirson (11:47.414)
Circling back to why this was a problem for this particular subcontractor, they're giving out between 150 and 200 invoices every month. And they're working on the basis that as long as they email a tax invoice, they will be compliant with the act. Well, the old act never even said that they had to give a tax invoice. It's never been the case in Victoria that you have to do that.
What they're doing is submitting their claim via PayApps where the builder requires PayApps to be used and then emailing a tax invoice thinking that that's going to help them. That's actually very dangerous with the new security payment regime in Victoria because if their PayApps claim was compliant and say their claim that month was $100,000, and they put that PayApps claim in and it uses their reference date for the 25th of the month. So on the 25th of the month they put a payment claim in through PayApps for $100,000.
And then later on that day they send an invoice for $100,000 to the same customer under the same construction contract. If that invoice was to comply with the security and payment regime as well, in terms of what it's got written on it, then that would actually be deemed to be what they're claiming for the following month. And if the trade breakup shows that the areas of work that they're claiming for were claimed in the previous month's claim, then they've claimed zero dollars.
Because they cla they're basically reclaiming what they already claimed the month before. By the time that comes around, they should have already been paid for that. So very dangerous loopholes if you have a accounts receivable escalation procedure currently and you think that you're complying with the security of payment laws that apply to your projects, and you have used some kind of urban legend or somebody decades ago put these systems in place.
you really probably chew for a health sh check because the that subcontractor was really disappointed when I explained to them how that could be a problem for them. But very quickly they were like, but we do a letter of demand. I'm like, yeah but the letter of demand doesn't do anything. There's no letter of demand requirement in the security payment laws. It doesn't give you any right to go to court. It doesn't enforce anything or put any deadlines on your builder. All it does is telegraph to them that you know you're owed the money and you haven't worked out how to get paid yet.
Michelle Cirson (14:06.741)
So not a fan of debt collectors, not a fan of letters of demand. Letters of demand if you're an Australian. And I think the the disappointing thing is that there is this confusion that does come from debt collectors and the way debt collectors do business that has confused the industry into giving letters of demand. Because
If you copy what a debt collector does, they give a letter of demand. But the really the only reason they're giving the letter of demand is so that the builder knows they exist and they've been engaged. Hey, I'm a debt collector, I'm gonna make your life hell until you pay this person so I can get my 18 to 25% commission on the debt that is going to be recovered. So hopefully that's of assistance. And while you're listening to this, you're gonna be thinking, that's great, Michelle, but where do I get an accounts receivable escalation procedure? Well
That is part of what we do in the Subis toolbox. So we have security payment toolboxes for every state and territory in the country. And part of what we do as part of our onboarding process is to identify the areas that we can get you the best results as quickly as possible. Most of the time, there is some money that subcontractors are owed. You can bank on builders to owe subcontractors money. It's a good bet either way, but once you come on board, we identify.
your aged receivables list and then help you triage that and implement your accounts receivable escalation procedure. So if you are working in every state and territory and you're owed money by builders in every state and territory, it is your lot in life that you need to have enough of an understanding of all the different security payment laws to be able to get yourself paid. And that's why the toolbox is so valuable because you don't have to keep this stuff in your head. You don't have to be going, but in ACT they do it this way.
But if I'm working in New South Wales, it's like that. No, what you have is an accounts receivable escalation procedure that we help you customize so that you can be compliant no matter where you're working in the country, and our payment claim template allows you to effectively allocate which legislation your project relates to when you're putting together your template. So food for thought, but if you're
Michelle Cirson (16:22.358)
Owed money and you're thinking about using a debt collector, please don't let them ruin your chances of using the special laws that exist to get you paid in construction. Debt collectors may have a time and place where you're in business doing something else. But in construction, it's the bottom of the list, bottom of the barrel way to get paid, if you ask me.
