Know your options: When a debt becomes overdue

We’ve all had it happen. You’ve raised and invoice, and you’ve watched the days tick down with no payment appearing in the bank. And then the invoice ticks into ‘overdue’, and you start to worry. The days wear on, and despite your requests, payment still isn’t forthcoming.

It’s not an uncommon scenario, and one every business will have seen at some point. In fact, recent studies show that around 30% of UK businesses now classify more than 10% of their debtor book as over 90 days old or overdue. But when you don’t want to just write off a debt like that, what are your options for collecting it?

DIY Recovery

If you have a dedicated credit control or finance team in-house, it can be incredibly tempting to continue chasing the customer for payment yourself. This can be beneficial, since your team will already have a good understanding of your customers and will likely be able to maintain any relationships you’ve built with them. It also means you can stay in control at all times, and you can update your cash flow forecasts quickly if needed. But this approach does have a downside. After all, chasing customers for overdue invoices can be a time-consuming process that takes valuable time and resource away from other areas of the business – often the newer invoices that need to be generated and managed. In fact, the average business will spend 17 hours a week on credit control. And almost a third of that time on chasing overdue debts. For businesses low on time or resources, or without a dedicated finance and credit control department, this can create a significant problem and cause productivity issues elsewhere in the business.

Outsourced Recovery

The second option available to you is often the more popular with SME’s. If you feel like you’ve exhausted all of your in-house efforts and still haven’t got anywhere, you can always outsource the collection. There are plenty of specialist commercial debt collection agencies (like us) who specialise in recovering particularly overdue invoices, dedicating the time and attention to each individual customer that you may no longer be able to afford. This isn’t an uncommon practice – around 17% of SME’s outsource their debt collection agencies, as this helps them get paid faster and frees up their own time to dedicate to other things. If you’re worried about the cost, think of it this way, the cost of employing a debt recovery specialist can be offset against the risk of losing your money altogether, and most collection services operate on a ‘success-only’ policy, which means that you don’t pay unless your money is recovered. You can also balance the expense against what it would cost you to hire a full-time employee to manage this for you, and outsourcing will come up the much cheaper option. While outsourcing debts can feel like a daunting process, as long as you find a debt collector who respects your brand as much as you do, you’ll be in safe hands.

Go Legal

Your final option is, of course, to go down the legal action route. While some customers will respond to the debt recovery techniques employed by you or a commercial debt recovery agent, others need an even firmer approach to persuade them to pay your outstanding invoices. This is where legal proceedings come in. At present, 35% of businesses use the Small Claims Court as part of their credit management strategy, and it proves very effective in encouraging customers to pay overdue invoices. However, it’s a time consuming and costly route to take – fees vary depending on the size of debt collected but were significantly increased in February. It’s also more likely damage customer relationships beyond repair. Therefore, we usually recommend that legal proceedings should only be taken if all other options have been exhausted.

At Debtcol, we’re here to help no matter which option you choose to take. We can offer advice and pre-invoice work to help you reduce the need to chase overdue invoices, advice and support in legal proceedings, and a fully managed outsourced collection service. Our experts are dedicated to preserving your customer relationships and representing your brand faithfully, allowing you to focus on generating income instead of chasing your tail with overdue invoices. To find out more, just get in touch for your free, no obligation consultation.