Chasing debts can be difficult and have a damaging affect on commercial relationships. Effective credit control is a vital skill – structured approach will improve recovery rates and minimise the risk of bad debts.
Here are ten tips for debt recovery:
1. Prevention is better than cure: Review your credit control measures, and consider the following for new customers:
* How do you vet them?
* Credit reports?
* Have you set (and enforced) credit limits?
* Are your terms of business incorporated
* Are your terms of business always signed
2. Make sure your message is consistent: Few people relish chasing debts. Make sure you staff are fair, polite but firm. Scripts can help.
3. Check your terms of business or the relevant contract: Ensure that payment dates are properly diarised and that next steps, be that a call or letter, are actioned urgently after an unpaid bill falls due. If your accounting software has a payment reminder facility, use it.
4. Keep proper notes of all calls and promises of payment: These can be useful if you have to issue proceedings. Judges often find contemporaneous notes compelling evidence. If you are told money has been sent, ask for a copy of the payment instruction to the bank or a copy of the cheque. Keep your debtor book under review and identify the “can’t pays” and “won’t pays”. Concentrate on the latter and get VAT bad debt relief on the former to help your cash flow.
5. Excuses: If your client is asking for time to pay, it is asking you to help finance its business. It’s not unreasonable to expect a written explanation from a director.
6. Set short deadlines: If your client is in financial trouble, delaying action may mean you recover nothing.
7. Keep your word: If you make a threat, for example, instruct solicitors to do it. If a debtor doubts your resolve, your threats lose their impact.
8. Consider reasonable instalments and discounts: Something is better than nothing but timetables must be adhered to and any default acted on promptly. Any agreement for instalments should be in writing – make it clear that instalments are being accepted without prejudice to your right to recover any outstanding balance if they default. Can you afford an early settlement discount” Customers like these but the discount must reflect the saving to you of not having to fund later payment in order to be effective.
9. Interest: Even if your terms of business do not contain an interest clause, you may be able to rely on the Late Payment of Commercial Debt (Interest) Act 1998 and claim statutory compensation and interest at eight per cent over the Bank of England’s base rate without having to commence court proceedings. If your terms of business do not allow you to recover interest, amend them accordingly and ensure that the new terms are sent to all existing customers with a letter highlighting the change and confirming it will apply to future orders.
10. Outsourcing: Credit control can be outsourced to specialists, some of whom operate on a “no collection, no fee basis”. This can often be a cost effective way of collecting monies owed to you.