When debts are owed, and stretching into becoming long overdue, it can be very stressful for any business owner. Your cash flow faces a threat, and if one or many large clients aren’t paying then your profits will thin out, making your business vulnerable.
The key to handling overdue debt is having a solid system in place to recover payments. And by following the steps laid out here you’ll get paid quicker, more often and, most importantly, the certainty of having a system that works will take away most of the stress and put you back in control of the situation.
Five Solid Steps to Debt Recovery
1. Decide if it’s worth pursuing
Any time, effort or money you put into debt recovery is time, effort and money diverted from building your business. So check up on this individual client, are they worth pursuing?
Smaller debts may be worth letting go of, but be aware this also sends out a message that you don’t chase up all your unpaid debts to other clients, which might hurt business in the long run.
The opposite of this would be to team up with a debt collection agency, as we recommend in later steps, and make it crystal clear the standard process you go through to recover unpaid debts.
2. Find out if pursuing will be effective
Make it part of your standard procedure to investigate the individual client – to make sure your efforts to recover the debt are likely to be effective, and to decide how to approach it. If it’s a large client or transaction, there may be a dispute over the goods you delivered which needs to be resolved.
If the client has cash flow difficulties, then some leniency and compromise with part payments may resolve the issue – and save your business relationship.
But if the client has already got County Court Judgments against them, a Debt Relief Order or are insolvent, then there’s little chance you’ll get any money back. Ask the local court to check the Register of County Court Judgments on them.
3. Communicate, prepare to compromise, but also be firm
It’s always worth communicating and being very clear on the steps you’ll take, leading up to hiring a debt collection agency and legal action. Remember, he who shouts loudest gets paid first. Be prepared to compromise, but be firm and clear on the steps you’ll take if your arrangement is broken.
4. Hire a debt collection agency
Very often, just receiving a letter through the door warning that a debt collection agency has been hired is enough to prompt immediate payment.
This step shows you’re serious, and gives your clients are little scare. A good long term business strategy is to partner up with a decent debt collection agency like PJCDS and make it very clear to all your clients that the agency is part of your payment process.
If clients know in advance then there is also less chance of resentment down the line, as they knew what would happen if they didn’t pay up, and agreed to it as well.
The agency can even collect regular payments for you and have their own standard procedure for dealing with late payments.
Other advantages of hiring an agency are:
- You save time, resources and stress working out how to go about chasing payments
- The specialists know all the best and quickest methods, tricks and legalities around getting your money
- You send out a very clear message to all your clients that late payment won’t be tolerated, putting you at the top of their list for payment before others
5. Hire a solicitor and go to the Small Claims Court
Many debt collection agencies have their own solicitors ready to handle any litigation and deal with cases on a ‘no recovery, no fee’ basis. – If you choose one that doesn’t, then you may need to hire a solicitor and follow their legal advice if you still haven’t seen results. Consider even taking the client to the Small Claims Court.
But if you carry out the first four steps, you’ll rarely need to go this far!