How small businesses can improve their debt recovery
As business advisors to a range of small and medium enterprises (SMEs), it’s clear that there’s one area many of them are struggling with at the moment: getting paid on time.
Despite initiatives such at the government-backed ‘Prompt Payment Code’ many SMEs are falling to the back of the queue when it comes to being paid, with catastrophic results for those failing to collect on significant amounts.
Debt collection methods – ways to improve your debt recovery
Providing there are clear terms & conditions in place between you and your customers, there are several options available over how you chase the overdue amount.
- Write a letter – generally, choosing the least time-consuming but cost-effective method is the starting point. The wording of your letter is important so you can prove you’ve chased the debt correctly and that the customer has been contacted
- Consider appointing a debt collection agency; many often offer a ‘no win, no fee’ service and have a wealth of experience in this area
- Appoint a solicitor – some businesses report success when a solicitor writes a letter, implying legal action could follow if the debt is ignored, although make sure you understand the solicitor’s fee structure upfront (are the solicitor’s fees greater than the debt being chased?)
- If the debt is above a certain amount, you could consider issuing insolvency proceedings although bear in mind that you could end up with very little if there are lots of others owed money too
- Small claims court – going to court should be seen as a last resort given this course of action is time consuming and can be costly; it very much depends on the amounts involved and how strong your case is
- One for the future – Tighten your internal controls – Did you chase the debt in sufficient time? Does your internal accounting system support efficient recording of client accounts and flag up when amounts are about to fall due? Perhaps consider shortening your credit terms?
If debt collection is proving a challenge for your business and you have concerns about your cash flow, we can help steer you in the right direction.