Late payments are a problem for businesses of all sizes – as of the start of 2016, the Zurich SME Risk Index found that more than half of all SMEs were owed money totalling over £250 billion, with an unfortunate 1% owed more than £1 million each.
Two-fifths said late payments had impacted negatively on their operations, while two-thirds said late payments are a factor in why some SMEs close down.
No matter how big or small your business is, there is no point trying to make a profit if you are not going to get paid at the end of it – and a debt recovery agency and a Commercial Debt Recovery Agency can be a powerful ally when a customer misses their invoice deadline.
Why outsource debt collection?
Although most SMEs are dealing with overdue payments at any given time, a lot of their owners just don’t have the time or experience to properly chase down the debt, which means late payments get later and later, and the business’s entire cash flow is potentially placed in jeopardy.
Outsource debt collection to a professional agency and you rid yourself of this burden, allowing you to concentrate on the profitable areas of your business.
The debt recovery agency can also act as a mediator so that if you feel like late payment is a personal insult, you don’t have to face the challenge of chasing the debt without getting overly emotional about it.
You have every right to feel angry and cheated by the client, but you’re more likely to recover the debt by staying calm and cool – and having a debt recovery agency fighting your corner is the perfect way to keep things professional.
When to use our services
The obvious answer is that you should use a debt recovery agency when you have a debt to chase, but it can actually be beneficial to get them involved long before that ever happens.
General Credit Control services can pre-emptively identify customers who are likely to pay late, or whose credit limit should be smaller because they are higher risk.
You might also hear of alternatives like Invoice Financing, where you ‘sell’ the invoice to a third party, and they chase down the debt for themselves.
While this offloads the invoice, you’ll typically pay a fee for the privilege – while the third party benefits from recovering the full amount plus penalties and interest.
By using an expert agency, you retain the right to keep the full value of the invoice, with certain legal rights to recover the debt collection fees from the debtor.
What we can do
A typical agency can serve a few different purposes for you, and you may want to enquire about Credit Control services – background checking new clients to predict the risk of late payment before it even occurs.
If a debtor has ‘done a runner’ with your money, a debt recovery agency can usually offer Tracing services to find out where they have gone and how to contact them.
But of course, the bulk of the work involves contacting debtors and firmly (but politely and professionally) reminding them of their obligation to pay in full – and if all else fails, pursuing the debt through the appropriate small claims or court process.
Although it is possible to do much of this yourself, it is usually faster, easier and more successful to use an outsourced debt recovery agency – even just a reminder on headed letter paper can be enough to show that you are serious about chasing the debt.
Why collection of debt is important
You might be surprised by how many different levels debt collection is beneficial on – it doesn’t just stop with your bottom line earnings, although of course it is important to make sure you get paid what you are owed for the work you do.
At the same time, it sends a clear message to non-paying customers that such unprofessional behaviour will not be tolerated – bringing money into your business sooner and discouraging late payment from all of your clients in the future.
Finally, and most importantly of all on the grand scale, the faster invoices are paid, the sooner you can spend that money on paying your own invoices – and the more times money changes hands, the better it is for the economy as a whole, in the total value of transactions and the tax receipts going into the nation’s coffers.
When does debt collection expire?
Don’t worry if a few months have passed since the invoice deadline – you have a fairly generous six years to start debt collection proceedings.
The sooner the better though. If you lose contact with the debtor completely, you may need to use Tracing services to find them again.
While this is all part of the debt recovery process, you need to re-establish contact before the six-year deadline passes, so it’s best to start debt collection as early as you can.
What is the debt collection process?
It’s not all about having your day in court – it’s about getting your money as quickly and painlessly as possible, which is partly why outsourcing debt recovery is a good idea to relieve the stress of chasing a payment in the first place.
A debt recovery agency will generally try to avoid going to court. The process begins quite informally, by making contact with the debtor and making sure they are aware of what they owe.
From then on, things gradually get more formal, with official letters and warnings of penalty fees and statutory interest charges.
If the debtor still does not pay, smaller amounts can typically be reclaimed without going to court, but still calling on the law to make them settle the debt.
For larger amounts, there is ultimately the option of court action, and you may be able to petition for the debtor to be declared bankrupt or insolvent – often the final threat that convinces them to pay up, rather than be put out of business.
How much debt can I recover?
It’s not as simple as recovering ‘just’ 100% of the original invoice amount that went unpaid – you can actually claim for more in nearly all cases.
There’s the right to add statutory interest at 8% above the Bank of England base rate, by calculating the daily amount of interest payable over a year, and multiplying this by the number of days overdue that the payment is.
You can add a fixed penalty to debts depending on the amount owed:
- £40 on debts up to £1,000
- £70 on debts up to £10,000
- £100 on debts over £10,000
And if your debt recovery costs are more than this fixed penalty amount, you can claim the remainder from the debtor too, so you should never be left out of pocket for chasing a debt.
Can debt collection chase old debts?
Absolutely yes. Debts that are within the six-year statute of limitations deadline can generally be pursued even if you have not attempted to recover them for several years in the meantime.
Old debts can be especially lucrative due to the right to charge interest on the overdue amount – and over the course of four or five years, that can take a medium-sized invoice to a much higher total.
If you have a stack of old invoices that never got paid, it’s worth thinking about outsourcing the whole lot of them to a debt recovery agency – you might be amazed at the amount that comes into your business account over the following weeks and months.