Top 4 Debt Collection Mistakes

There are a lot of things that can cause cashflow strain on a business. Some are external and beyond our control, like global conflict or economic decline. In those cases, we have to try and react as things change and try to make the best decisions we can at the time. But others, like late payment and overdue invoices, we can do something about. We might not be able to force clients to pay (without a court order anyway), but with the right approach and preparation, we can reduce the risk. Sadly, this is where a lot of business owners make mistakes. So today, we’re going to look at the most common debt collection mistakes, and how to avoid them.

Waiting Too Long

Once an invoice becomes overdue, how long do you wait before you chase it up? If you’re honest with yourself, it’s probably too long! You might hope that the client has just forgotten and will pay soon, or worry about seeming too pushy if you follow up too quickly. There might not be enough people in your business to have a systematic approach to collection, or you might not have clearly defined triggers for escalation. We’ve seen all of these and more in action, and the paralysis they cause can allow small payment delays to turn into major bad debts. And the longer the debt goes unpaid, the less likely it is you’ll be able to recover it, and the more it will cost to do it.

The simplest way to avoid this is to set up clear escalation triggers. Starting at a friendly reminder email all the way up to starting legal proceedings, all at set intervals of time.

Not Doing Proper Credit Checks

If you provide a credit facility to your customers, thorough credit assessments should be a key part of the process. It’s a simple step that can significantly lower your exposure to bad debts. But sadly, a lot of businesses choose to skip it. This could be because:

• Your sales team are prioritising closing deals over proper credit risk assessment.
• You think that running credit checks will slow customer onboarding.
• You feel that credit reference fees are an unnecessary expense.
• You worry that strict credit terms will mean you lose business to competitors.
• You want to trust customers based on personal relationships rather than objective data.

Again, all of these things are understandable, but they do significantly increase your risk to bad debt. It also means you can’t put protections in place in case of defaults, or make informed decisions about how much credit to offer.

An easy way to do this is by implementing a tiered credit checking system, so that you don’t need to spend more time and money than is necessary. Each company will have a different view on what they view as too much risk, but a basic structure could look like this:

Low value transaction (under £1K): Basic Companies House and CCJ checks.

Medium value transactions (£1K – £10k): Full credit agency reports and trade references.

High value transitions (over £10k): Comprehensive due diligence, director guarantees, retention of title clauses.

New customers: Always check regardless of value until a pattern of payment has been established.

Existing customers: Periodic reviews, either annually or when circumstances change.

Credit checks aren’t a hugely expensive thing to do, and when you compare it to the cost of thousands in bad debt, it’s a price worth paying.

Poor Communication with Debtors

When communication is patchy or broken down, you quickly get misunderstandings, disputes or basic administrative errors that could all be easily resolved through a clear and simple conversation. Common communication failures between businesses and customers include

• Unclear payment terms
• Missing delivery confirmations
• No payment reminders
• Adversarial tones
• Inconsistent contact
• Lost correspondence

All of which can turn minor issues into major disputes that could end up being expensive to resolve. To avoid it, implement clear and systematic communication at all stages of the sales process. Starting with your invoices, which should have clear due dates, payment methods, late payment charges and dispute procedure. Then delivery confirmation, payment reminders, overdue follow-up, documentation, professional tone and clear escalation warnings. This structure means you can maintain your relationships with clients while still showing them you’re serious about payments.

Handling Things Internally for Too Long

Handling debt collection in-house can be efficient for start-up businesses, but when the number of invoices and late payments starts adding up, it can exhaust your resources quickly. It also creates opportunity costs, and is less effective as debtors realise you have no authority for escalation.

However, a lot of businesses will stick with in-house collections a lot longer than they should. They might think it’s too expensive to outsource, or want complete oversight of customer contact. They might also not understand the advantages of professional collection, or want to preserve the relationship with their clients. But over time, this approach often wastes the time of staff who could be working on other things, lower morale and delay recovery for longer and longer. Thankfully the solution to this one is simple – outsource.

Outsourcing to a professional debt collection team means you have a team of experts on hand to chase overdue payments, providing a systematic approach and persistence without the emotional involvement that causes delays. We also have the negotiation skills to recover debts quicker, and free up time for your internal staff.

At Debtcol, we do all of that and more. We’re a proactive debt collection company, meaning we don’t just chase the debts when they’re overdue, we help you put systems in place to reduce the number of payments that go late. If you’d like more information, you can contact the Debtcol team and speak to one of our experts today.