Businesses of all sizes in every industry regularly have to deal with the issue of non-paying clients.
Larger companies may have the resources and staff required to chase for payment in the form of a credit control team. Smaller businesses might not have this ability or the capacity to support such a venture. Even so, money that is owed to the business is potentially an even bigger issue for a small company.
Non-paying customers can affect the cash flow of any business, and it is important to act on any potential issue of debt as soon as possible. If a debt is left idle, it can cause a lot of financial problems for a company.
A shocking 80% of businesses in the UK are owed money by non-paying customers and unpaid invoices. Unfortunately, many small business owners have needed to take drastic measures to keep their company’s afloat. Some have had to sell off personal and business assets to make ends meet, and more still have had to close entirely.
The issue of unpaid invoices must be taken seriously, but many small businesses lack the resources necessary to do so. Hiring the services of a professional debt collection agency is always a good option, as they provide a low-cost solution to this issue. Before doing this, however, some methods can be done in-house.
Expert Debt Collection Methods for Small Businesses
As well as seeking the help of professional debt collectors, there are some methods of debt collection that small businesses can perform themselves.
Set up Payment Terms and Conditions
The best way to resolve a case of bad debt is to prevent it from occurring in the first place. One common way for businesses of all sizes to do this is by setting up payment terms.
Payment terms help clients to understand what their financial obligations are before the onset of an agreement. It will also provide details on any consequences should a client not pay on time. It is best to ask the customer to read through and agree to these terms before proceeding forward with the agreement.
If there were payment issues, later on, you can refer back to this document to remind the client of their agreement.
Issue Payment Reminder Letters
Once a payment date has passed and an invoice becomes overdue, it is a good idea to issue a payment reminder. This reminder should inform the client that their payment is now overdue and that they should pay it as soon as possible.
This message should always be written in a professional tone and sent via a method that can be recorded. An example of this would be either via royal mail recorded delivery or in an email with a read receipt.
Payment reminders can be effective to prompt a debtor into making a payment. It may sound too strange, but in some cases, there is often a simple explanation for why the customer has not paid. For example, they may have just forgotten to pay.
Whilst reminders can work, it is important to remember that some debtors will string you along with excuse after excuse. You should always set a cutoff point for issuing reminders with the intent to escalate the matter if they do not work.
Charge Interest on Late Payments
Many businesses add late payment interest charges onto their invoices to provide customers with an incentive to pay on time. If an invoice is paid late, then the customer will be required to pay an additional charge. This is normally enough to prompt people to pay on time.
If you intend to enforce late payment interest charges, you must clearly state that these charges will be incurred on an invoice or in your payment terms. The customer must be made aware that this could happen if they do not pay.
Late payment charges can be effective, but there will always be those people who will do almost anything to avoid paying what they owe.
Mediation
It is sometimes better to attempt to resolve a dispute with a non-paying customer before escalating the matter to a third party. This can help to de-escalate a confrontational situation with a customer, and also potentially remove the need to go to the expense of hiring a third party.
Mediation can help to resolve matters in a way that is acceptable to all parties, but it may not result in the full amount of money being recovered.
Professional Services
Despite the best in-house processes and preparations, there will be times where a debtor will do everything possible to withhold the payment of a debt.
If this has happened, you should seek professional assistance before spending more of your own valuable time chasing someone who will continue to ignore you.
There are many professional solutions available, and choosing the best option is often challenging. Historically, people and businesses have taken their cases to the court systems, but this can be a very expensive option with no guaranteed outcome. In recent years, it has become more common for businesses to use professional debt collection agencies.
A debt collection agency will provide a low-cost and effective solution for all debt collection cases. Steps are taken to ensure that all cases are resolved amicably for all parties involved.
In the UK, Federal Management is known as the leading commercial debt collection agency, They have helped businesses of every size recover millions of pound worth of unpaid debt since their openings.
