Debt Recovery

Business Insight

The golden rule in business is to collect money owed to you faster than you have to pay out money you owe to others.

Most businesses experience some problems getting paid on time by their customers, but good credit control systems are the golden key to minimising such problems.

In any type of business, situations in which your clients fail to pay the money owed to you can cause serious cash flow issues, leading not just to financial woes but in extreme cases to the failure of your business.

Commercial debt recovery specialists, FreeDebt Recovery advise that your chances of recovery are directly linked to the age of the debt. The longer the debt goes unpaid, the less chance you have of recovering it. Many businesses avoid or delay prompt debt collection for two main reasons. First, they find the process of chasing debtors unpleasant, and fear to alienate valued customers. Second, businesses (especially new businesses) often become so involved in daily business activities that debt collection is put on the backburner, or simply neglected in the hope that people will eventually pay.

The best way to avoid debtor problems is to establish efficient systems and follow set procedures. Your routine credit control should include a series of steps to chase payments as soon as they become overdue – sending reminders, phoning the customer and so on.

It is important to take a diplomatic but firm approach. Discuss the situation with your customer, and try to resolve any problems so that you can reach an agreement.

If this fails to get a satisfactory response, it may help to involve more senior people in the customer organisation. For example, you could send copies of your correspondence to the finance director; depending on the circumstances, the finance director might then instruct his subordinates to make payment

Explain what steps you intend to take to recover the debt, letting the customer know before you start any legal proceedings.

There is no point in demanding immediate payment in full if the customer simply cannot pay. Negotiating part payment and rescheduling the debt - confirmed in writing - can at least help you recover some of the money you are owed, and improves the chances of maintaining a good relationship if the customer's problems are only temporary.

You will stand a better chance of recovering the debt if the customer wants to continue doing business with you in the future, either because you have built a good relationship over time or because it will be difficult, expensive or disruptive for them to find an alternative supplier.

Your negotiating position will also be stronger if you have ensured that the transaction was covered by clear terms and conditions.

Bear in mind, however, that customers who do not pay their debts may not be as valuable as you thought! Good customers will usually appreciate their suppliers adopting firm credit control.

However, there are occasions when a customer cannot, or will not, pay. To avoid a bad debt, you may need to use a third party or take legal action to recover the money you are owed.

There are established debt recovery procedures available for attempting to secure the money you are owed that will not necessitate going to court. Statutory demands in particular are an absolutely vital part of your toolbox when it comes to making it clear that you will not tolerate a failure to repay money owed to you.

Using a Commercial Debt Recovery Specialist can be a cost effective way of recovering debts. Commercial debt recovery specialists will make every attempt to negotiate payment or resolve any dispute amicably before resorting to the courts. Often the customer will pay up straight away (or in instalments) once they hear from a third party professional recovery specialist, for fear of damaging their credit history.

While it is a last resort, significant sums of debt owed by particularly intransigent debtors may force your hand and require you to take them to court to recover the money. But before taking a debtor to court, it is important to consider whether or not it is worth it – if the debt is small or they are genuinely unable to pay, you may find that it costs you more than it is worth.

You want to be sure that you have a reasonable chance of recovering the debt, and that it will justify the expense and effort of pursuing it.

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