Most businesses that have been operating for five years or more will have experienced several instances of non-payment, and if you have not taken action to recover an old debt, here are 5 good reasons to do so.
- Deadlines – We mention it often in relation to recovering an old debt, but the six-year deadline should always be in your mind when deciding which debts to chase. Prioritise those that are about to become statute-barred, as even just one qualifying interaction with the debtor can reset the clock, allowing you to undertake the rest of your debt recovery action at your leisure.
- Interest The simple fact is, old debts accrue interest – typically at 8% above the Bank of England’s reference rate – and this is often a much higher rate than you can get on savings and business investments. If there is a good chance of convincing the debtor to pay, going after old debts can be a substantial money-spinner, turning what was once a deduction from your bottom line earnings into a considerable addition.
- Closure – Unless you formally write them off, old debts can just linger in your company accounts – never paid, but still not statute-barred until the six-year deadline is reached. Chasing an old debt gives you a chance to finally cross it off of your to-do list, so you can stop wondering whether or not you should try to recover money owed to you for several years, and focus on your core business again.
- Peace of Mind – On a personal level, especially for sole traders, being left out of pocket by a customer you previously trusted can really leave a sting in the tail.When you recover an old debt, you not only achieve the financial and administrative closure mentioned above; you can also reach emotional closure and finally sever all remaining ties with the debtor.
- Revenge OK, you should never make a business decision purely out of a desire for revenge, but chasing an old debt can be about fairness – getting what you are owed, and making sure the debtor does not fail to pay a supplier in the future. In the first instance you can add interest and penalty fees, plus reasonable debt recovery costs, to maximise the amount you claim, while if a debtor defaults on a really large debt, you may want to petition for their company to be dissolved to prevent any further disruption to your supply chain or industry.