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debt managment

Published: 03 January 2017
Area of Law: Debt Collection

Four steps to successful debt management

Dealing with late or non-paying customers can quickly become a significant problem for most businesses, if sufficient resource is not made available to manage it efficiently. For many businesses it can be difficult to know when to call in the experts but specialist advice can help to prevent debt management issues going from bad to worse...

Look for early warning signs

Stay on the look-out for early warning signs that a customer may become a problem. If a key customer normally pays their invoices on time after 60 or 90 days but payments have recently started to slide – this could be a sign that they are experiencing cash-flow difficulties. Also, has the customer recently changed their name, or are using a different bank.

For growing businesses it is especially important to check the credentials of key customers carefully at the outset and monitor the relationship as it develops in order to avoid the risk of bad debt. 

Know when you might need to bring in the experts

Businesses need to think twice about using specialist debt recovery services. Some view such services as expensive when in actual fact most specialist firms operate on a fixed-fee basis,  

Early intervention can help to recover debts more quickly, and it is understood that  older debts are generally more difficult to collect.  Early intervention can also help to prevent the situation from spiraling into a more costly and time consuming  legal dispute.

When selecting a firm to provide debt recovery services, businesses should make sure it has the breadth of capabilities to see the matter through to its conclusion. Some debt recovery agencies are unable to issue county court proceedings, or deal with contentious issues, and this can lead to unnecessary delays and costs.

Be clear in contracts

Putting in place clear contractual terms and conditions at the start of a new supply relationship can help to reduce the risk of bad debt arising. If the business is supplying ‘goods’, for example, it should consider having  a ‘retention title clause’ to ensure that the customer cannot claim the goods as their own until they have paid for them in full. If the customer fails to pay on time, the supplier would be within their rights to take back the goods and sell them to another company, provided the clause was drafted correctly and fully incorporated into the contract.

To prevent bad debt issues escalating, All businesses should make sure they have efficient systems in place, to try and prevent bad debt issues escalating. Making it clear that the business has a strict policy to tackle late payment of undisputed invoices can help to lessen the risk of bad debt arising and staying in touch with late payers can sometimes shed light on the extent of the customer’s financial difficulties, and help mitigate any potential losses.

Don’t cut corners 

Small and medium-sized businesses should not be tempted to cut corners. When chasing payment, it is important to follow debt management protocols and failing to do so can make it harder to recover bad debt in the long run. Having access to good quality advice can also help the business to decide whether an unpaid invoice is worth pursuing or not through the small claims court system.

You should also make sure you work with a reputable firm as the company will be making contact with your customers and are therefore an extension of your business.

In summary

For businesses focused on growth, it is important to establish the right policies and procedures from the start and make sure they are always followed.

Knowing your customer, and using specialist debt recovery services should also help the business to manage debt more efficiently, while freeing up managers to focus on what they do best; creating new trading relationships and winning new business.  

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