Debt Collection Process for Small Business
Debt Collection Process for Small Business
Small businesses are affected by debt just as much as any company of any size. For smaller businesses, this may represent a significant financial blow, as non-payments interrupt the normal cash flow.
There are many reasons why a small business might be owed money. For example, they could have unpaid invoices from their clients. Or, a client could be disputing work that they are claiming is incomplete.
Regardless of the case, it is critical to resolve the matter as soon as possible. This is something that small business owners know well, but many will be unaware of the best ways to collect debt.
Federal Management is the UK’s leading commercial debt collection agency. Since our opening in 2004, we have helped thousands of businesses recover millions of pounds worth of unpaid debt.
We help businesses of every size on a daily basis and have a wealth of experience in every sector. We asked our experts for their thoughts on the best debt collection process for small business.
Debt Collection Process for Small Business – Expert Advice
Facing the prospect of collecting money you’re owed should always require careful consideration. The choice that you make is important, as choosing poorly can result in unforeseen consequences.
There are various professional solutions that can be used, such as hiring a debt collection agency or taking legal action in a country court. In some cases, a small business might not have the capacity and resources to perform these tasks themselves, and so a professional solution should be used.
In some cases, there may be certain steps that a small business could do in-house. Whilst this is an option, it is important to consider that this will come at a cost. If you try to perform debt recovery in-house, your time will be taken away from value-based tasks as your attention will be needed for the task at hand.
Here are some methods for creating an effective debt collection process for small businesses.
Most businesses require clients to sign off on and agree to payment terms before commencing a new agreement.
These terms normally describe the payment process and obligations the client will have. It is also the appropriate place to list any penalties or steps that will be taken should a payment be missed.
Most businesses have payment terms of 30 days, with some larger organisations having terms as long as 60 days.
If the client agrees and signs this, then you will be able to reference this at a later time should they withhold a payment. If they are hesitant or outright refuse to sign the agreement, then this may be a signal they never intended to pay you anyway.
Chasing the Payment
If your client has not paid, then it is time to begin the process of chasing the debt. This is most commonly done through phone calls or emails, however, it is better to send reminder letters through recorded postal delivery.
Sending a letter is the preferred method, as it allows for a paper trail to be generated. When your reminder is delivered, your debtor will need to sign for it to confirm reception.
You should allow a reasonable time for the debtor to respond or pay between sending your reminders. Sending messages too often or contacting them outside of reasonable hours may be viewed as harassment. This could land you in trouble with the authorities and even give the debtor grounds to withhold payment.
Late Payment Charges
It is common for companies to institute late payment charges for business debt. If a client misses the due date on a payment, they will need to pay a penalty fee.
This is a very effective way of ensuring that clients pay on time, and your credit control team can refer to this when chasing for payment.
When setting late payment charges, you must make it clear on all relevant documentation. For example, you must state what the charges will be (i.e. the rate of interest).
Hiring a Professional
Despite the best preventative measures, there will always be those clients that will not pay no matter what. When this happens, it is better to seek the assistance of professional debt collection services.
Spending too long chasing the debt alone can end up costing more money than a professional option.
Many solutions exist, such as county court action through the services of a debt collection solicitor. However, this option often also becomes very expensive, and many small businesses are forced to write off the debt due to the increase in costs.
Instead, instructing a professional debt collection agency is a good option. They will provide an effective and low-cost solution, recovering the money professionally and swiftly.
Federal Management is one such agency and is regarded as the UK’s leader in commercial debt collection. For more information, speak to one of our friendly debt collection experts today.