Many SMEs are struggling to recover the money they are due. Brendan Clarkson, Director at Azzurro Associates explains how following proper procedures could help to reduce losses.
Debt recovery starts upfront
Customer relationships should not be damaged if both parties to a business transaction have agreed key details upfront. It is essential that clear and concise terms and conditions are signed by both parties at the start of the business relationship.
The terms and conditions should clearly state the agreed payment terms and the consequence of late payment. These could include:
- the suspension of credit terms and/or supplies
- referral to a third party debt recovery company
- recovery of statutory costs and late payment interest
- possible legal action
Proper processes should also be established and applied for each customer transaction. This includes obtaining a purchase order for every sale, and issuing invoices on a timely basis. Invoices should clearly display relevant purchase orders and the payment due date.
It’s important to be proactive about monitoring your debts and encouraging payment. Rather than waiting for the payment due date to arrive before taking any action, send a payment reminder in advance. This can help to highlight any customer issues or queries concerning the invoice and reduce the likelihood of late payment.
Collecting overdue debts
Chasing up overdue debts requires commitment. You need proper procedures in place for ‘dunning’, the process of making insistent demands for the payment of an unpaid debt. These demands could be paperbased, by email or phone.
Sufficiently large businesses with a collections department would typically issue several such payment reminders over a certain period of time, ultimately threatening to take legal action and/or hand the matter over to a debt collections agency. The approach and tone may be influenced by the importance of the client relationship and the size of the debt.
If you have limited internal resources or specialist support, employing a third party debt collection company early on can be helpful. By using a debt collection company specialising in B2B or B2C
recoveries, positive outcomes can often be achieved. The majority of customers will make payments due, or will at least make arrangements to settle their debts, before any formal legal action needs to be initiated.
Where customers still fail to pay their debts, you can turn to Her Majesty's Courts and Tribunals Service. If debts are substantial and you believe the debtor company has assets to recover, it may be appropriate to seek a winding up petition.
Other options include:
- county court proceedings, where a county court judgement will be lodged against the debtor if they persist in non-payment
- High Court writs
- charging orders (placed on specific assets)
- bankruptcy petitions
- attachment of earnings (relevant where the debtor is an employee)
Under the law, you have all these weapons in your armoury when seeking to recover debts, and you should not be afraid to use them. The key factors of using these laws are to understand who is your
customer, what security do you hold? And if any personal guarantee is held.
You should only write off debt when you are sure that there is no prospect of collection, ie that your customer is insolvent. Otherwise, you should use all the tools available to you.
Professional advice on the best course of action is always recommended, but particularly for substantial debts.
If you want to know more about Azzurro Associates debt solutions offering, please contact Brendan Clarkson or Karen Savage.
