When Should Electrical Contractors Hire a Debt Collector?

Unpaid invoices are an unfortunate reality for many electrical contractors.

But when a customer refuses to pay, an important question quickly follows – at what point is it financially worth chasing the debt through a debt collector or legal process?

According to Laurence Hugo, Director of Credit Mediation, there is no single dollar figure that automatically determines whether a debt should be pursued or written off.

What determines whether a debt is worth chasing?

After 38 years in debt negotiation and recovery, Laurence says the decision is ultimately commercial rather than purely financial.

“There isn’t a single dollar figure where a debt ‘tips’ from write-off to recovery, it’s a commercial decision shaped by cost, strategy, and appetite for escalation.

“The question isn’t just how much is owed, but what are you prepared to spend, and how far are you willing to go.”

Key takeaways for electrical contractors

• There is no universal dollar threshold for debt recovery.
• Smaller debts are often written off where recovery costs outweigh likely returns.
• Soft collection activity is usually the first recovery step.
• Legal escalation may improve recovery prospects for larger debts.
• The debtor’s financial position is often more important than the debt amount itself.

When do businesses usually write debts off?

For smaller debts, many businesses decide recovery efforts are not commercially worthwhile.

“At the lower end, say, $1k to $2k, many creditors lean toward charging the debt off and claiming a tax loss – particularly where the debtor is unresponsive or appears insolvent.”

Laurence says even basic collection activity can reduce any meaningful financial return.

“The cost of even basic collection activity can quickly erode any net return.”

What is soft debt collection activity?

For larger debts, many businesses begin with lower-cost collection efforts before considering legal action.

Laurence says soft collection activity may include:

• phone calls
• letters
• emails
• SMS campaigns

“This is relatively low cost, often commission-based, preserves the customer relationship, and can yield strong results where the debtor has capacity but needs prompting.”

For many debts between $5,000 and $10,000, this is often the preferred starting point.

When should businesses consider legal action?

Where debts are larger – or softer recovery attempts fail – creditors may consider legal escalation.

Laurence says this can involve:

• Statements of Claim
• court judgments
• garnishee orders
• examination summons

“This introduces filing fees, legal costs, and time delays, but can significantly improve recovery prospects where the debtor has assets or income.”

Why the debtor’s financial position matters

The debt amount alone does not determine whether recovery action makes sense.

“A $3k debt against a high-income debtor may justify legal action, while a $15k debt against an insolvent individual may not justify further spend.”

Assessing the debtor’s likely capacity to pay is often a major factor in deciding whether to escalate.

Why staged recovery strategies work best

Laurence says the most effective recovery approach is usually staged escalation.

“The most effective creditors treat recovery as a staged process: start low-cost, assess response, and escalate only where the likely return justifies the additional investment.”

This allows businesses to manage costs while still preserving recovery opportunities where appropriate.

Frequently asked questions about debt collection

Is there a minimum debt amount worth chasing?

No. The decision depends on recovery costs, debtor circumstances and the likelihood of successful recovery.

What is soft debt collection?

Soft collection includes lower-cost recovery efforts such as calls, emails, letters and SMS communication.

When should businesses consider legal action?

Legal action may become worthwhile for larger debts or where softer recovery attempts have failed.

Does writing off a debt mean the debtor no longer owes it?

Not necessarily. A debt write-off is an accounting and tax decision, but the debt may still legally exist.

Why does the debtor’s financial position matter?

Recovery action may not be commercially worthwhile if the debtor has limited assets or appears insolvent.

What electrical contractors should remember

Debt recovery decisions are rarely based on dollar value alone.

For electrical contractors, the real consideration is whether the likely recovery outcome justifies the additional time, stress and financial cost involved in escalation.

Starting with low-cost recovery activity and escalating strategically can often deliver the best commercial outcome while reducing unnecessary expense.

Supplier Spotlight