Managing Your Cash Flow

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Get paid: the secrets of debt recovery

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Overdue bills can be a nightmare to manage. If you’re a smaller business whose survival is dependent on regular cash flow, the urgency of the situation is magnified. A good cash flow is critical for companies to be able to pay their staff and suppliers; not to mention if they are to have any hope at all at generating income for the owners and shareholders of the business. Recovering debt as quickly and as smoothly as possible is one of the key aspects to staying afloat in a difficult market. Taking the right steps from the outset will allow you to maximise the monies which are rightly owed to you without damaging your business relationships.

Make your first step the right stepThe first step towards recouping outstanding debts is to ensure that your terms and conditions are clear regarding payment. Print these payment details on all your invoices. If you are going to use an external company to collect overdue payments make your intentions clear to your customer so there can be no misunderstandings.

A solution for recovering overdue monies needs to be one that can be put into action swiftly to give you every chance of getting your money back at the lowest cost to you.

Many small businesses find it hard to chase a customer for the debts as there is a risk that attempts to recover debts will be seen as aggressive and relationships can sour.

These concerns can be avoided by a simple and effective recovery solution.

As the payment terms near their end or shortly after, a "friendly" phone call can often result in payment. And if not, you have the option to follow this up in writing to instigate a gentle reminder of the outstanding payment due and, to re-emphasise your payment terms.

What has to be avoided is continual phone calls and letters chasing debt. This wastes your time and stops you from concentrating on new business. Enlisting the help of a recovery agent or a professional solicitor at the early stages could be beneficial in terms of saving you time and money in the long term and taking on board the hassle and emotional concerns that often materialise.

Some companies will look at employing the services of a debt recovery company or specialist solicitors who will act on your behalf to recover the debt. Although often effective, some of the charging models require such firms to be aggressive and as a result relationships can be damaged.

Debt collection agencies will usually charge a percentage of the total debt, which means they are likely to cherry-pick those larger debts and cases that will bring them a good guaranteed return. Some companies, including law firms will traditionally work on an hourly rate or will charge an amount for each letter sent or action taken.

It is always advantageous to recover a debt without resorting to litigation as costs are often not recoverable unless the unpaid amounts exceed £5000, and you will be expected to cover such costs.David Green is CEO of MTA Solicitors

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