Any business can find themselves in difficulty.

Business Insights

A large order defaults on payment, a larger than expected bill comes in from HMRC, or maybe something as simple as illness or incapacity of the business owner can have a negative impact on the business. The bank may ask for settlement of your loan, or refuse to allow you the extra advance you were relying on. Or then, perhaps a build-up of unpaid debts has had a detrimental effect on your cash flow.

Many business owners tend to put off chasing debts. It is not pleasant, and they often fear to lose a valued client. There is also a tendency to assume that sooner or later the debtor will pay up. Indeed some businesses continue to supply the defaulting customer, making the situation even worse.

Under such circumstances there is no incentive for the debtor to pay, after all they are still being supplied by you. James Stanton from FreeDebt Recovery Ltd, commercial debt recovery specialists is sympathetic but asks why your business should be subsidising your debtors. After all, what have they done for you?

He urges creditors to stop the rot and make it clear to their debtor that the situation cannot continue and that the debt must be paid.

In his experience, problems with cash flow – or rather the lack of it – can, if not dealt with speedily and efficiently, lead to far more serious difficulties, even the inability to continue trading.

Companies should have good credit control practices in place with clear terms and payment conditions on the invoice, some companies even find it helpful to offer discounts for prompt payment. Immediately the debt is overdue the customer should be contacted and their reasons for non-payment discussed. If the customer cannot pay the debt in full it might be possible to agree an instalment arrangement.

An overdue debt must not just be left in the hope of getting paid, the longer they are left the less likely payment becomes and the more likely insolvency for your company becomes.

The truth is that when problems arise very few SME companies have the skills in-house to cope with the burden that cash pressures place upon a company, and then in many cases, once the business is actively in distress spend a great deal of valuable time fighting fires.

This is where factoring or invoice discounting companies can be useful, they will take your order book and pay you a percentage of the outstanding amount, dependant on the aged debtor profile and the credit worthiness of your customers, relieving in part, your cash flow problems. They prefer to work from your current order book rather than only dealing with bad debts. It should be remembered, that under these systems you only get a percentage of your money, and if you only give them your bad debts, the percentage will be very low because of the level of risk they run, but you would, at least, free up some cash flow.

A professional commercial debt recovery company, will endeavour to recover the whole debt for you. Bringing in the professionals as soon as the debt becomes overdue, is a time saving and cost effective method of recovering debts. Once you have handed over your debts, the recovery company will contact the customer on your behalf and sometimes just that first letter from an outside agency can be enough to see the debt settled.

Particularly intransigent debtors may not pay until they are brought to realise that non-payment will result in court action and notification to credit reference agencies.

Often companies can be reluctant to divulge their customer’s details, fearing a heavy handed approach, and the loss of a “good” client. The majority of agencies are very professional; sympathetic yet firm, and it should always be remembered that a “good” customer is one that pays their bills on time and then re-orders, not one who expects indefinite credit.

Letting a professional outside company deal with your debtors will relieve you of the stress of chasing payments and allow you to get on with doing what you do best, running your business!

FreeDebt Recovery Ltd is a commercial debt recovery specialist which operates under the Late Payment of Commercial Debts Regulations 2013.

They can be contacted through their web site