Many of us make new year’s resolutions to help us achieve personal goals, but if you’re a business owner, now’s also the time to review your company’s strengths and weaknesses.
One area which is likely to have room for improvement is debt recovery.
Late payments can affect companies of all sizes but SMEs are often hit the hardest. Last year, research by Bibby Financial Services showed that the average levels of bad debt at small firms increased by 70 per cent in just one year. A survey by Company Check also found that 68 per cent of all UK businesses have had to write off bad debt. In response, the Federation of Small Businesses (FSB) said that this could be a result of small firms ‘lacking the confidence to charge interest and complain about late payments’.
In our experience, we have also seen many small business owners show a reluctance to chase bad debt and often, they don’t have a process in place to prevent late payments. So as we start the new year, here are some simple steps SMEs should be putting in place to reduce the risk of debt and ensure that they can recover money owed as quickly as possible:
- Ensure you include clear payment conditions in your terms of agreement.
- Set a credit limit and a notification if a customer wishes to exceed their agreed credit limit.
- Always be firm and stick to your payment terms unless it is a situation that warrants a late payment, but this should be for exceptional customers only.
- Ensure your statements and invoices are sent out to customers on time.
- If there are any disputes with the customer which could be preventing payment, discuss these and try to resolve amicably.
- Keep all records up to date and follow up missed payments immediately once it’s noticeably overdue.
- If there are no valid reasons for non-payment after the first reminder letter, send a final reminder.
- If payment is still not received, seek specialist legal advice as quickly as possible. More often than not, if that first letter does not result in payment, your third letter is unlikely to result in debt recovery so don’t waste time repeating the process.
The Debt Collection Centre can help by sending an initial legal letter on a no-collection, no-fee basis. As the letter is from city solicitors, this sends a powerful message to a debtor that the debt must be paid immediately. As a result, in the vast majority of cases, this results in full payment together with accrued interest and costs.
For further advice or help in recovering debt, please contact our specialist team.