When running a business, there are many different challenges that you face. You will need to bring in new customers, develop your products and services and find efficient ways to make money. Unfortunately, no matter how hard you work, you will find that there are some customers who do not pay their bills. There can be many different reasons for this, but it is important for the health of your own business that you are able to recover these debts as quickly and efficiently as possible and so it can be necessary to turn to a debt collection service.
We have all heard tales of unscrupulous debt collectors in the past, which is why it is important to be very careful who you choose to represent your business. At Lovedays Solicitors we have huge expertise in providing debt collection services for businesses who are struggling with overdue accounts, so here we take a look at what business debt collection means and the best ways to go about it.
Overview of Business Debt Collection
As a business, you will probably produce invoices for any services undertaken or products that you have made. These invoices will have their own payment terms and when a customer fails to meet these terms then you may need to look at ways to recover that debt. This is because unpaid invoices can have a huge effect on your cash flow and therefore reduce your inventory turnover. As a result, this can harm your company's credit ratings and tarnish your reputation, so the sooner you take action, the more likely you are to receive the money that you are owed.
If you are confident that the invoice has all the correct details and that an enforceable contract is in place between the two parties, then you can begin to tackle any overdue invoices within the first 45 days of the due date. As most payment terms request payment within 30 days, an invoice becomes a bad debt if it remains unpaid for a total of 60 days, and this is when you are able to resort to business debt collection.
Consumer debt collection refers to any debts owed by an individual customer to a business, however, business debt collection differs from this as it specialises in collecting debts owed by one business to another.
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Key Elements of Business Debt Collection
The process of debt collection relies on good communication, documentation and legal compliance. Before undertaking any business debt collection, you should first try and reach out to the customer yourself to find out whether there is a problem that can be dealt with, such as an issue with the goods or a problem with their payment systems. You should also ensure that you have all the necessary paperwork in order that confirms exactly what they agreed to and that you have a full and complete invoice so that you can prove your case and show that the debt is legitimate.
If a telephone call and a firm but polite letter requesting payment have both been unsuccessful, then you may want to consider external options for business debt collection. Experienced business debt collectors specialised in collecting the balance in full, from the debtor whilst trying to avoid going down a route of litigation.
Your business will continue to own and control the amount that is owed to you by the customer, and the debt collectors will work as a middleman between the two of you. They have the ability to reach out to the customer directly and their requests can often be taken more seriously.
They are also able to negotiate payment plans if full payment is not possible and they have the ability to initiate legal action to collect the amount if it has not been paid after 180 days. It is important to remember that there are different better categories and so you will need someone who can tailor their collection strategies accordingly.
The Business Debt Collection Process
Initial Steps
When you have issued an invoice to a customer, you will need to set out the payment terms outlining how many days they have to pay. If they fail to make the payment in the required time, then it is often advisable to pick up the phone and try to speak to them directly. This can often help to iron out any minor problems such as the invoice not having been received, issues with the goods or any difficulties the customer might have in making payment.
If this is unsuccessful then you should try sending reminders and a polite but firm demand letter. This should serve as a reminder to the customer that the invoice remains outstanding and should request prompt payment. It can often help to give a clear deadline for that payment so that there are no ambiguities. You should also advise that you intend to take more stringent action should payment still fail to arrive.
It is important that you keep clear and accurate records of all communication that you have with the client and any transactions that are made. Should you need to refer the debt to a debt collection agency or pursue a path of litigation, you will have full records of everything that has been said, which should make your case more successful.
Working with Debt Collection Agencies
If you have sent clear and fair reminders and no payment has been received, then you may need to turn to a business debt collector instead. Deciding to do this can be based on a number of factors including the relationship that you have with the client, whether they have made any attempts to make payments, and how much communication you have been able to have with them. Business debt collectors can often make a situation appear more serious, and this can galvanise people into making payment much quicker and once they are involved.
In most cases, you will still own the debt and agencies may decide to charge you based on a percentage of the amount collected or through a flat fee. They will start by using phone calls and letters to reach the customer directly and request the payment in full. Should they not be able to make this possible, then they will begin to negotiate a payment plan with your approval. There is a 180-day window In which this payment in full or through a payment plan needs to be made, and a failure to do so means that the agency then has the right to initiate legal action in order to collect the amount owed.
Legal Actions and Considerations
If it becomes necessary to take legal action to recover your debt, then you will probably be referred to the Small Claims Court. This means your case will be heard by a county court, and the fees for this tend to be much cheaper than going to the High Court. The Small Claims Court can deal with claims which are less than £10,000 in value.
Once a claim is made through the Small Claims Court, the customer has a 14-day limit in which to respond. If they fail to respond or choose to challenge the claim, then the case will need to be heard in the county court and you will need appropriate legal representation on your side.
Should you win a judgement, but the customer still refuses to pay the debts, then you may want to have the debtors summoned to appear in court in order to be questioned. This can sometimes prompt payment, and the court may consider sending in bailiffs to seize goods for judgements up to £5000.
A winding-up petition can also be issued if an insolvent company fails to repay a debt of more than £750 which has gone unpaid for at least 21 days. If the winding-up petition is not successfully opposed, then the company can be compulsorily liquidated, bringing it to an end and causing its assets to be liquidated for the benefit of anyone who is owed money. This can sometimes make it possible for you to recover some or all of the debt if there is enough to pay any creditors.
In order for it to be possible to pursue any debts, it is vital that you adhere to all laws and regulations during the process as legal pitfalls could mean you are not eligible to make a claim.
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Benefits of Professional Debt Collection Services
Advantages Professional Debt Collection Services
There are a number of benefits to employing the service of professional debt collection agencies. The main reason for doing this is their increased success rate. The fact that a debt collection service has got involved is usually enough to prompt most people into making payment or at least trying to negotiate a payment plan.
This is because they are aware that the consequences are rapidly becoming more serious, and they wish to avoid any legal action. Successfully chasing outstanding debt also requires a degree of legal expertise, which is usually provided by a professional debt collection service and can help you to avoid any typical legal headaches.
It is important that you make use of the right professional debt collection services. Debt can mount up for a number of different reasons and it can present a difficult situation for your customer. By using a debt collection service who has a good reputation, you can still help to maintain customer relationships and avoid any unnecessary aggressive tactics being involved.
Risks of DIY Debt Collection
You may decide to handle the outstanding debt yourself, but this can cause more problems. One issue can be that the customer still fails to take the debt seriously and so it can linger on for a lot longer than it needs to. When handling debt collection, it is important that you follow a legal process at all times.
For many business owners, outstanding debt can start to feel quite personal and so it is easy to cross the line when it comes to dealing with your customers. This means you may not maintain legal compliance, which could then harm your case when it comes to making a claim for the debt and may even open the door for the customer making a claim against you for aggressive tactics. Chasing debt is also a time-consuming process and this can be quite costly for a business. Dealing with the issues of chasing debt can mean the extra strain is put on your resources and expertise within your business is not being used in the most efficient way.
How Lovedays Solicitors Can Help
If you need help and assistance with any business debt collection issues, then Lovedays Solicitors are here to help. Since our Derbyshire-based business was established in 1905, we have helped many different businesses deal with commercial legal issues, including debt collection. We can offer a range of different services to help you recoup any debt that you are owed by your customers.
We will start with an initial consultation where we will take the time to learn more about your situation and can look at what documentation you have to prove your case, as well as the efforts you have gone to already to collect the debt yourself.
This will enable us to offer you expert advice on what your next steps should be, and we can put together a strategy together to find something that works for you and your business. We can also look at what legal action you are eligible to take, and we can help to initiate this and represent you in court if necessary.
The team at Lovedays Solicitors are all experienced professionals with many success stories between them when it comes to the issue of recovering business debts. We pride ourselves on our personalised approach because we understand that every case is unique. We will look at your own individual situation and build your case accordingly, so that we can ensure that your interests are protected and at the forefront of everything that we do.
Conclusion
It is never nice having to chase outstanding debts, and we recognise that this can sometimes put you in a very difficult position. That is why Lovedays Solicitors are here to assist you with the process of debt recovery in a way that can help you maintain any important client relationships whilst ensuring that you receive any money that you are owed as quickly and efficiently as possible.
When debt from any client begins to build up, it is important that you act as soon as you can. The professional debt collection services available from Lovedays Solicitors will help to ensure that everything is done with full legal compliance to make sure that you receive your payment in full or that a workable payment plan is put in place, helping to reduce the amount of stress that you may endure and reducing the time you need to spend on the issue.
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