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Business Law - Debt Recovery
Due to the recent economic downturn, many companies are being faced with outstanding debts from a large number of their customers. One of the main issues is debts not being paid on time and this can be catastrophic for small businesses that rely on a steady income from month to month.
If you own a business, you should take as many precautions as you can to avoid having to deal with late paying customers. One of the first things that you should consider is a way to avoid outstanding debts altogether by thoroughly credit checking your customers to find out if they have a history of late payment. You should also make sure that you send off any invoices and reminders as quickly as you can. You should have a procedure put in place for late paying customers, you should ensure that you set out clear dates on all of the invoices and reminders that you send out and explain the consequences of failing to pay on time. Most companies will give late payers 90 days to repay their debt before they take further action.
You should also look out for certain traits that are common in customers who are trying to avoid payment. Common traits include finding it difficult to get in contact with the customer, if you fail to hear anything back from letters, emails and phone calls, this is a common sign that the customer is avoiding payment. Another trait to look out for is resistance when you discuss setting up a payment schedule. They may also break their promises as to when you will receive a payment. Another tactic used by customers who want to avoid payment is to complain about the services they have received or their contract. This is so they can attempt to have some leverage when resisting payment.
If you can identify customers who will cost you considerable debts quickly it will mean that you can save a lot of time, money and resources in chasing them for the repayment of their debts. If things do spiral out of control, you should consider taking legal action for example employing a professional debt recovery firm to get the money that is owed to you or employing a solicitor.
While debt collection agencies can be effective, they can also give your company a bad reputation if they use heavy handed or threatening tactics. You should ensure that you choose a debt collection agency carefully so you have a chance of keeping the customer in the future.
Debt collection agencies will usually charge a flat fee and then a percentage of the debt that they are recovering. You should consider the costs carefully and weight it up against the debt you are chasing to see if it would be more cost effective to write off the debt.
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