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Top debt recovery tips

New research has shown that businesses hit late payers with the threat of legal action five days sooner in 2014 than they did in 2013*, as they tried to reclaim the money tied up in debts. In this article, we tell you how to go about collecting the money that is owed to you so it hopefully won't get to court – and to prevent it from happening in the first place.

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New research has shown that businesses hit late payers with the threat of legal action six days sooner in 2011 than they did in 2010, as they tried to reclaim the money tied up in debts. In this article, we tell you how to go about collecting the money that is owed to you so it hopefully won't get to court – and to prevent it from happening in the first place.

When collecting debts, it is advisable to follow a set procedure. Here we look at some of the steps you can take, however, this is not intended to be a definitive action list for following up on debts. Members can call our helpline on 0845 130 1722 for further information.

Invoice

Invoice quickly and efficiently. The sooner you invoice, the sooner you get paid. The invoice should include a thorough breakdown of all costs, dates and details of the product. Make sure the invoice details are accurate before you consider taking further action. Read invoicing tips here >

Statement

Send this as soon as possible after the end of the stated payment date. The statement simply states the amount owing and the due date. Hopefully, this will be enough to encourage payment, but if not send a reminder letter.

Reminder letter

This should be sent fairly close to the statement, perhaps a week later, to show that you are keeping an eye on the debt. At this stage, the letter should be polite, gently reminding the customer that they have not yet paid.

Telephone call

If the reminder letter has failed to work, the personal approach is the next step. Try to speak to the person who the invoices have been sent to.

Talk through the specific details of the product and the dates when payment should have been made, as well as subsequent actions taken. Now is the time to find out if they have any queries over payment, or if they are struggling to pay the bill and wish to pay in instalments.

By the end of the call, you should have agreed a plan of action with regard to paying the debt. Follow the call up with a letter, outlining the details of the conversation.

Final reminder letter

This should outline the action you will take if payment is not made promptly – for instance, refusing future requests for credit or taking statutory action to recover the debt.

Legal action

No one relishes the thought of having to take legal action against debtors, but the money you are owed is rightfully yours by law. Sometimes patience just is not the answer, especially when your business is put at risk because of the debt. We recommend that you seek professional legal advice regarding any statutory action to recover your debts.

Small Claims Court

Another option is to go through the Small Claims Court, where debts of no more than £5,000 can be pursued. Before proceeding with this measure, the court will have expected you to have made reasonable effort to come to an agreement with the debtor; otherwise you may not be awarded your costs even if the claim is successful.

Preventative measures

Practising good credit management can stop things from getting to the point of having to take legal action or put pressure on your clients.

These include:

  • Credit checking all new customers
  • Imposing stricter terms and conditions on customers who have delayed payment in the past
  • Setting credit limits according to the level of risk
  • Providing a financial incentive to paying ahead of time
  • Discussing terms and conditions at the earliest opportunity and making sure your customer signs them before purchase.

If you only send these with an invoice, they will only serve as a reminder but may not be legally binding as this information is provided after the transaction has taken place. You can also use a stop list for customers you do not want to give more credit to.

Update your stop list regularly and do not supply any more goods to customers on the list until they have paid their accounts up to date. Inform late payers that they are 'on stop', encouraging them to pay up, especially when they realise they want to place further orders.

Members of the Forum can download free credit control templates, including sample invoice, or call us on 0845 130 1722 for further advice and information.

* Lovetts Plc, 2014

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