It’s essential for small businesses to keep on top of late payments. Unpaid invoices can cause significant problems for business cashflow and in the worst cases can result in companies becoming insolvent. If you need to successfully collect a small business debt, there are systems and procedures you can put in place.
Debt collection for small businesses
The point at which an invoice becomes late will depend on your business’ payment terms. These are often 30, 45 or 60 days from the date of the invoice. However, where there is no written agreement as to the payment period, invoices are considered to be late after 30 days.
Regardless of how long your payment terms are, you need to wait until this period has elapsed before taking any further action.
Reduce the number of late payments
One of the most effective debt collection tips for small businesses is to keep the number of unpaid invoices to a minimum. It’s not necessarily realistic to completely avoid having any late payments, but an effective credit control system will be beneficial.
Successfully collecting business debts starts as soon as the client begins using the business. Before providing them with any credit facilities, ensure you know as much as possible about them – their financial standing, whether they’re a limited company, partnership or sole trader, and any other relevant details.
There should be clear payment terms and conditions attached to your invoices. It’s also important to have a signed agreement or order form from your client.
Once an invoice is late it’s important not to wait before chasing the debt. The client should be reminded about the debt with a statement or letter and followed up with a phone call to chase payment. This will pick up any problems or disputes with the invoice and will generally result in payment being made.
Typically, when a client is late paying their invoice, it isn’t because they don’t want to pay. It might be that that they are suffering cashflow problems of their own at the time. Therefore, it could be beneficial to both parties to come to a payment arrangement on this occasion – this could be paying the invoice in installments or reducing the overall amount.
What is the debt recovery process?
Passing the debt over to a small business debt recovery company shouldn’t be left till the last minute. The sooner they can start chasing up the customer, the better the chances of a quick and full payment being made. Where unpaid invoices are left for months, or even years, they are much harder to recover and there is also the risk of the company going out of business.
When the unpaid invoices have been passed to a business debt collection company, they will begin by making contact with the customer. This is usually by letter in the first instance, explaining the additional recovery fees, interest and compensation that will be added. These are fixed fees set out in government legislation.
Recovering small business debt should be a priority and debt collection companies understand the importance of a quick and effective recovery process. Where there is no response to the letter before action, follow-up calls and emails will be made to the debtor.
This can then be escalated to a County Court claim where necessary. In many cases, this encourages the client to take the debt seriously and is an efficient way of recovering the unpaid invoices. However, it is not a guaranteed method of debt collection. The debtor can still ignore the claim or refuse to pay the outstanding sum.
Enforcement of the judgment will follow if payment isn’t received. At this stage, the High Court Enforcement Agent has the ability to take control of goods and other assets.
Small business debt recovery
For a small business debt collection can be a stressful and time-consuming process that takes you away from other important areas of the company. By the use of a third-party small business debt recovery company, you can be guaranteed of a professional and experienced service. This gives you peace of mind that the matter is being dealt with and gives you a better chance of successfully collecting the unpaid invoices.
To find out more about our debt collection services at CEA Limited, contact our team today on 0845 643 0635, email office@cealimited.co.uk or complete our online contact form.
More information:
Late payments impacting on SME recovery
Shorter invoice terms can speed up payments