A guide to debt recovery for small businesses.
Many small businesses in the UK experience the worry of having their cash-flow disrupted by customers not paying on time, or not pay at all.
Incredibly, many small businesses are reluctant to chase bad debt. Research has shown that the majority of those firms who are reluctant to pursue debtors are so because they find the process uncomfortable and confrontational, and don’t want to antagonise their customers. It is estimated that over a third of UK SMEs write off thousands of pounds of bad debt each year. This is a concerning statistic as in this as bad business debt can be fatal for a small business and after providing your goods or services, you should chase the money that is rightfully yours.
We have put together a brief guide and the steps to take before seeking advice from a debt recovery solicitor:
- For the business to business sector, take steps to get to know and establish the identity of your customer. Credit checks or land registry checks can help with this and are relatively easy to access. This is a good practice to add to your procedure as it will give you a peace of mind that you are dealing with an actual credible business.
- Make sure your payment terms are known to your customer. The best way is to print them clearly on your terms of engagement, so this sends a clear message that you will be chasing your payment after said period.
- As soon as your customer/client has overstepped the mark and the bill is overdue, ask for the money you are owed.This should be done politely in writing by email, with a follow-up in the post.
- If there is no reply within seven days, check that the details of the invoice are correctand that you have quoted all the information the customer needs to identify it, for example, the date etc.
- If there’s still no response within seven day, make a phone call to find out what the problem is.Do not assume that the customer has no money; there may be queries on the account or other problems. Find out the apparent reason for the non-payment.
- Keep the pressure up as late-payment customers mustn’t assume that the debt will just be written off by simply ignoring it. Keep up the pressure at a steady and persistent. Do not pester and then drop for a few weeks; all your previous chasing is undone.
- If the customer says, ‘The cheque has been posted,’ ask for the date this was done,whether it went first- or second-class, how much the cheque was for and what the cheque number is.
- If the cheque does not arrive, go to collect the money in person;this is what the HMRC does. Get the cheque cashed as soon as possible, so that it cannot be stopped.
- If all the previous steps have failed, ask a debt recovery solicitor for legal advice.
Advice may include:
- writing as initial debt recovery letter before action to formalise the process.
- consider issuing a claim for the debt or even consider starting bankruptcy proceedings against an individual or winding-up proceedings against a company.
- consider using the small claims court depending on the size of the business debt.
For more information and advice on debt recovery for your business, contact Tebbitts & Co on 01270 211567 or email firstname.lastname@example.org to arrange a free ½ hour consultation.