A Small Businesses Guide To Debt Collection

Cash flow is the lifeblood of every business, but never is it more important than in a small business. These types of organisation rely on their invoices being paid on time, often in order to pay expenses and keep the bank balance looking healthy. But customers aren’t always obliging with quick payments, and sometimes polite reminders just aren’t enough to encourage debtors to pay you what you are owed. When this happens, many small business owners will simply write off the debt, suffer the blow and move on, thinking that debt collection is only for bigger businesses with much bigger bank accounts. But thankfully that’s just not true, and today we want to take you through the steps any small business can take to recover debts owed to them, without breaking the bank.

Make The Claim Yourself

If cash flow is a little tight this month, you might consider making a formal claim yourself. You can do this online through the HMCS Money Claim Online Service. This is an official service run by HM Courts & Tribunals Service, and can be used by claimants and defendants alike. Before you begin, you need to make sure that your claim is suitable and that you understand the process fully – usually by reading their user guide for claimants. This is a relatively inexpensive and straightforward process,  but one that does require a significant time investment. But the pitfalls of submitting an incorrect claim can cause a lot of delays or an unsuccessful claim, so it’s not the most popular option out there if you need to recover the debt quickly.

Hire A Solicitor

The laws when it comes to debt collection can be a little complex, and you need to make sure you have everything in place before you move forward. A good solicitor will always be happy to give you some basic advice over the phone for free, so that you can understand what options are available to you and how much each will cost. Be sure you check the costs of each option carefully, as in some cases the cost of recovering the debt is higher than the best itself. But before you worry about that, try simply asking a solicitor to send a letter. In the vast majority of small business debt collections, a single letter from a solicitor is all it takes to make a business pay up. If there is no response from a letter, your solicitor will be able to guide you through the 2 options open to you, which largely depends on whether the debtor disputes the debt. If they don’t, and it’s a simple case of them not having the money to pay you, then you can begin insolvency proceedings.  If they do dispute the debt, court proceedings will be started and you will be required to give proof. From there, the judge will make a ruling and you can enlist a bailiff or claim from the third party who holds their money for what you are owed.

Engage A Debt Collection Agency

Your third option is to engage a professional debt collection agency. This option is incredibly helpful for small businesses who need a bit of ‘muscle’ behind their payment demands, particularly if they feel their customers aren’t paying because they think they can get away with it. The arrangement you have with your debt collector will vary from agency to agency, but typically the collector will take a small percentage fee from the total funds recovered. So if they don’t get your money for you, they don’t get paid. And since contact from a debt collector is usually enough for a client to sit up and take notice, it can be incredibly cost effective.

Above all, every business owner, even individuals, shouldn’t feel bad about putting pressure on customers to pay off their debts. It’s also important for businesses to understand that a customer who has ignored your first phone calls and emails is likely to continue to do so, unless something changes. Instead, you should take a professional, firm approach without being aggressive, and if your own efforts are getting you nowhere, enlist the help of a professional. After all, a small fee to send a letter could save you thousands in the future. Oh, and one more piece of advice – don’t be tempted to forge a legal letter demanding payment. In 2014, big name payday lender Wonga was ordered to pay £2.6m in compensation to customers after it send out fake legal letters.

For more information about small business debt collection, or to ask one of our experts for advice about how to reclaim money from your outstanding debtors, get in touch with Debtcol today