According to recent search by Direct Line for Business, small and medium sized enterprises (SMEs) wrote off a total of £5.8 billion in debt over the last financial year. And in a recent survey by Company Check, it was found that an astonishing 80% of UK small businesses are owed money. This has a dramatic impact over general profitability. If not handled correctly, the debt recovery process can be extremely costly. Here are some top tips to keep the cost down:
AGREE THE TERMS UPFRONT
It’s important to prepare for the worst-case scenario by agreeing the terms of your business relationship at the start. These terms should clearly articulate the payment conditions and the consequences of late payment. By having both parties sign these terms at the outset, proper processes are initiated from the beginning, and customers are less likely to provide late payments, since they know the risks that face them. These payment terms may include information on late payment interest, referral to a third part debt recovery agencies, or possible legal action.
IDENTIFY BAD DEBTORS EARLY ON
It is important to understand that if no acknowledgement or payment has been made by a debtor within six years, the debt will become unenforceable under the Limitations Act, meaning no legal action can be taken to recover it, which will obviously have financial repercussions for those hoping to collect the debt. So it’s useful to recognise bad debtors early on. Bad debtors are notoriously difficult to get in contact with. Correspondence is ignored, they are reluctant to discuss payment schedules, and fail to live up to their side of the bargain. For these individuals it is often useful, and advisable, to call in a debt collection agencies and solicitors earlier on. Knowing that negotiations with these parties may be lengthy, this proactive approach will save you money in the long run.
If you can avoid court action you’re sure to save yourself a lot of money. But if court action is your only option make sure the debt you’re attempting to recover is substantial enough to warrant the expensive legal efforts, which will inevitably be incurred. Writing off the debt you’re owed may be a better financial option for you. You also need to make sure the debtor has the means the pay you once you’re in court, if they’re bankrupt the debt is likely to be stricken off and you may not recoup your losses.
You have to be organised and efficient when monitoring your debts and encouraging payment. Using a collection system like LATERAL can allow you to efficiently handle your business operations by automating more of the manual tasks. You save time, which is your most valuable resource.
With careful planning and the application of the right software, your debt recovery costs can be substantially reduced. Learn how LATERAL can help you.