The Harsh Realities of Debt Collecting In Your Business

Have you ever had the task of recovering money from a client who hasn’t paid your invoice? We’re willing to bet it wasn’t your favourite thing to do, whether it was successful or not. Debt collection is one of those essential jobs that often isn’t pleasant in a business, which can lead people to leave it to the last minute, putting it off time and time again hoping it will resolve itself. But the reality is, it probably won’t, and you will need to engage in debt collection of some form to get that money into your bank account. It’s rarely a straightforward process, and it can have an impact on your cash flow as a result. Luckily there are solutions for every challenge, so today we’re going to share a few of the harsh realities of debt collecting for businesses, and how to overcome them.

Sometimes You Have To Get Tough

Your relationships with customers are important, and it should always be a priority to preserve and enhance them wherever you can. But when it comes to debt collection, sometimes you need to get tough if you want to get paid. If you’re lax with debt collection there are some clients who will think they can get away with not paying, or paying late every time. But stronger tactics for debt collection will make them realise that they can’t get away with not paying you, and used properly are a quick way to settle outstanding invoices.

A few techniques for this include putting customers on a ‘stop’ list if they frequently miss their invoice deadlines, halting their services until payment is received. This demonstrates that you won’t tolerate late payments, and gives the customer a good incentive to pay on time. You can also charge late payment interest, which not enough businesses do even though you have the legal right to charge it. And finally consider bringing in a third party to support you in debt collection, as again this demonstrates that you’re serious about being paid on time.

Customers Aren’t Always Honest

We would love to think that everyone in the world told the truth, especially the people who choose to work with us, but sadly that’s not always the case. Many will, but there will always be some customers out there who will do anything they can to stall or avoid making a payment. That includes lying about car accidents, deaths in the family or financial difficulty (all of which we have come up against in our work).

You can’t force someone to be honest with you. But you can control how you respond. Our best advice is to be a little sceptical about any excuses given for late payment, and have specific procedures in place to verify as many as you can. For example, if a customer says their cheque is in the post, ask them for the cheque number and postal date, and confirm they have the right company address for you. If they’re genuine they will know all of this information, but if they’re not they won’t, and you can ask for payment over the phone. Offer a selection of payment methods to avoid the ‘I can’t do that one’ excuse, and if you give warnings, make sure you follow through on them.

Sometimes You Can’t Win

While we don’t like it, sometimes debts are just unrecoverable. No matter how efficient you are and what processes you have in place, outside forces will sometimes mean you will never see the money you’re owed. For example, if your client has run into their own cash flow difficulties and had to declare insolvency, all the companies they owe money to will be prioritised by the insolvency practitioner. That means where you are in the list determines if you get paid, and there’s nothing you can do about it. There are other things that can render a debt unrecoverable, and it’s important to know what those are.

While you can’t stop these things from happening, you can take steps to protect yourself against them. You can run background and credit checks on prospects before taking them on as clients, so you know how stable their business is. You can run regular financial health checks as well, so you can see if something might be wrong before it becomes a big problem for you. You can collect full or partial payment upfront, especially for larger invoices, or you can invest in credit insurance to protect your cash flow in the event of non-payment.

Not All Debt Collectors Are The Same

There are going to be times when you just can’t get the client to pay yourself. If you’ve exhausted all of your avenues to collect an unpaid invoice, your next step is to get a professional debt collection agency involved. They can help you collect the debt from your client, or support you in the process of legal action if needed. But beware! Not all debt collection agencies are the same, so it’s important to vet the one you choose carefully before you sign up. Do your research into debt collection as a whole and the company you’re looking to work with to make sure they have enough knowledge and experience to act properly on your behalf.

Honestly, the best way to do this in a low-impact way to is find a debt collection agency to work with before you even need them. This means you won’t feel time-pressured into making a decision, and instead can focus on finding a partner who matches your ethos, approach and business needs.

At Debtcol, we work closely with businesses of all shapes and sizes to help you manage your cash flow with effective credit management and debt collection. We understand the harsh realities of the debt collecting world, and can work alongside you either as a partner or as an outsourced service to ensure all invoices are paid on time. If you would like to know more about how we work, just get in touch with the team today.