Effective Debt Recovery
The average SME is owed over £33,000 in unpaid invoices.
The challenging economy over the last few years has seen all kinds of businesses under increasing pressures to deal with debts; it is not surprising when increasing cash flow pressures creates deviant debtors who struggle to meet their obligations to pay their debts on time or at all which can all too often result in costly litigation.
Whatever your business, good practical procedures lead to steady cash flow, which in turn allows for growth and development.
Know Your Client
All too often collection is frustrated or delayed by failure to deal with basic paperwork and due diligence at the start of a transaction or business relationship.
The most common examples include (i) invoices addressed to someone other than the contracting party (ii) the invoice/contract failing to identify the customer correctly by name, legal status and/or location or (iii) the change in identity or legal status of the customer not having been recorded and dealt with at the time.
Failures will often be exploited by debtors to delay payment or avoid payment. “Know Your Client” is crucial. At the most basic level, you should know whether you are contracting with a PLC, a limited company or partnership, or a sole trader and maintain accurate enough up to date contact information.
To understand the background of a customer and carry out routine credit checks – assessing the credit risk and payment history of new customers while monitoring current ones, enables you to more confidently manage credit and to minimise the exposure to bad debt.
For larger contracts, or where there is a degree of uncertainty to financial standing of a customer, you should consider taking security for the line of credit to be offered (depending on your bargaining position).
We can advise on all of these issues.
Terms of Business
Make sure you have your own terms and conditions (whether standard or bespoke) relating to payment and default of payment which are incorporated into your contractual paperwork.
Terms should be reasonable (to be enforceable) and should clearly set out your terms of credit, payment obligations and the consequences of non-payment. Effective terms and conditions (outside of the bespoke contracts) can be a trap for the unwary. Make sure they are supplied or accessible to your customers and that your contract paperwork makes it clear that these terms apply.
Ad hoc amendments to another businesses’ terms should be avoided.
We can advise on and produce these for you.
“Keep an eye” on late payers.
If an account becomes overdue, consider taking steps to place a stop on it and/or dispense of services until the account is paid (subject to your terms).
Be aware of any signs which may suggest difficulty paying and take advice on immediate action to protect your position. Getting to “the top of the pile” is crucial in distress situations.
It is often productive to telephone or (where practical) visit a customer so you can assess any genuine queries or potential disputes and/or any financial difficulties that exist now or in the future.
We suggest a commercial approach to “can’t pay” situations and with this, consider a formal instalment plan to preserve the business relationship (perhaps also with security to enhance your prospects of getting paid).
Acting quickly may include:
- The sending of a formal letter before action
- Issuing your claim form
- Entering judgment
- Enforcing judgments
- Alternatively the service of a statutory demand; followed by bankruptcy and/or insolvency proceedings
- Taking control of goods
- Our clients are frequently puzzled and at the same time impressed at the effectiveness of just one letter of demand from us rather than from the business resulting in payment (often with interest and costs).
Contact Chris Sykes if you have exhausted all efforts to get paid. We can of course cease recovery action at any time, if our involvement generates a dialogue between you and your customer which is productive.