Debt Collection For SME’s – More Than Just A Pipedream

When you’re a small to medium sized business, there is nothing worse than chasing late payments from clients. It’s a time-consuming task that, if handled incorrectly, can lead to a souring of the relationship – and we all know that every relationship is essential to an SME.

It can also get quite costly, with recent studies revealing that the UK’s SME population spend on average 11 billion a year chasing overdue payments. That’s why we see so many SME’s simply avoiding the subject altogether, choosing to leave debts unpaid rather than go through the hassle of dealing with them. But it doesn’t have to be that way – there are some easy ways you can reduce the risk of late payments, and make it easier to collect if they do happen.

Make Sure Your T’s&C’s Are Up To Scratch

This is a step you can take before you even engage with a customer to ensure there can be no misunderstandings around payment. It also means you will stand a better chance of recovering payment further down the line. Investing time and money into having comprehensive, legally sound terms and conditions can really pay off in the long term for SME’s, largely because many aren’t expected to have them, or enact on them. Make sure you set out your payment terms clearly, including what steps will be taken to recover monies owed if customer accounts fall into default. And more importantly, make sure all customers have seen, read and agreed to these terms and conditions.

You can do this by requesting written confirmation in an email (which you should then store a copy of for future reference) or by having them sign a document containing your terms and conditions before you start work. By showcasing that you have a process and that they will be held accountable, you can vastly reduce the risk of late payments in the future. If you’re not sure where to start, we’ve put together a guide on the process of contractual terms, which you can download here.

Ensure Your Processes Are Clear

While some business will occasionally run into problems paying their suppliers on time, more often than not the money you are owed is available, but it is actually a lack of information that’s delaying the payment. The person who placed the order with you will know who you are and exactly what goods or services the invoice related to, but the person in accounts who is processing your invoice might not. So if there are any discrepancies or missing information in the process, the payment will be delayed. The best way to avoid this is to make sure that all documentation you provide is clear, concise and accurate. Include clear service descriptions, all payment information, VAT numbers, addresses and other important information on the invoice. Issue order confirmations and ensure purchase order numbers are on everything. If you run monthly billing, send out statements so that customers know exactly what they owe and when. Make it impossible for anyone to not understand what is being provided so that your customers can’t claim missing information. Invoicing can be a complicated process in itself, so if you want some extra advice there, you can download our guide here.

The 3 Step Process To Debt Collection

Make Contact. This is the very first step in the process, and should be done as soon as you notice a payment is late. If you’re sure your invoice details are correct, it’s time to pick up the phone. This can be incredibly uncomfortable for some people, which leads to it being ignored. But it is essential you communicate openly, and if you structure the call or email as a courtesy call you are more likely to get a positive response. Start by asking if the customer was satisfied with the product or service provided, before moving on to saying something like ‘I just thought something might be wrong as we haven’t been paid yet.’ This will give the person on the phone a gentle nudge, and if the payment has simply slipped through the cracks then this could be all that’s needed to prompt payment. For more advice on this, check out our handy guide.

Get Assertive. Sometimes though, it isn’t that simple, and that’s when you need to start getting assertive. Notice we didn’t say ‘aggressive’ here – that will rarely get you anywhere. Instead the best way to get assertive is to know your legal rights and understand Late Payment Legislation. For example, if an invoice has not been paid after 30 days, you may have a statutory right to add compensation and interest to the original amount. You don’t have to claim this – but it is a useful bargaining chip to have in your back pocket. The same legislation also allows you to charge the customer for the use of third parties for debt recovery, which is another powerful tool in securing payment.

Get Help. If, after all that, no payment has been forthcoming, it’s time to get some professional help. Debt recovery experts like Debtcol, or certain solicitors can help you understand the legal debt recovery process and what steps you need to take. Debt recovery specialists will be able to guide you through what to do next, or even take on the task themselves, giving you back your valuable time and ensuring the debt is collected promptly.

If you are an SME who is having trouble collecting late payments or long term debts from your customers, we can help you. We find SME’s who deal in providing goods or services on credit are particularly vulnerable to non-payments, which is why you can enlist us on a one off or an ongoing basis to handle your debt recovery. For more information, get in touch with our team today.