Debt Recovery is a challenge for every business, particularly small businesses. Unpaid invoices are a problem for any business but can be disastrous for a small business.
Ironically, this is one area of their businses that most owners often put off. It can be unpleasant but this is your money and you have a right to be paid. Debt recovery in a small businses can mean it succeeds or not!
Here’s our advice:
1. Debt Recovery – Tackle the problem as soon as it happens.
Don’t put if off because it feels uncomfortable. Do you know one of the most common reasons that small business owners put off tackling unpaid invoices? It’s because they don’t want to upset the client. Do you want a client who isn’t paying you without a good reason?
2. Charge Late Fees:
If your business terms and conditions allows, you can charge late fees for overdue invoices. Make this clear on all of your invoices and in your debt recovery. Not covered this in your business terms and conditions? If you’re dealing with another businses then the law may help you! You may able to claim interest and more as part of your debt recovery. Remember that you don’t have to charge late fees. Being able to can be a good negotiating tool and incentive for your client to pay you. For example, you can offer to not charge interest and late fees if your client pays by X date.
3. Send a first reminder:
Start by sending a polite reminder by email to your client about the outstanding invoice. Make sure that you include important information – the invoice number, due date, amount owed and how to pay you. Also set a deadline – make it clear when you expect the client to pay you by.
4. Contact the Client directly:
If the client doesn’t respond to the first email reminder then preferably call. You can always text the client if they don’t pick up the phone. Sometimes a personal touch can resolve the issue quickly.
5. Make it easy to pay you:
Your client is facing financial difficulties? See if you can come to a payment arrangement. For example, offering a payment plan or instalment option will make it easier for them to pay you. Can you offer alternative payment methods?
6. Send a second reminder:
If you haven’t made any progress then send a more formal reminder. We’d suggest that this should be by email and by post. Again, make sure that you include important information – the invoice number, due date, amount owed and how to pay you.
7. Send a Formal Demand Letter:
If the invoice remains unpaid, send a formal demand letter. Use this letter to clarify the outstanding amount, payment deadline, and consequences of non-payment.
8. Consider Legal Action:
As a last resort, you need to think about taking debt recovery legal action to recover the debt. If you’re clear how much you’re owed and the debt is under £25,000 then consider using Money Claims Online. https://www.moneyclaims.service.gov.uk/make-claim. This is a service designed for creditors themselves to use. Many small business have used Money Claims Online very successfully. There are lots of prompts and support about how to complete your claim. However, if your debt is larger or complicated then you should take legal advice.
You should always take a professional and systematic approach to handling debt recovery. By having a process to handle non-payment of your invoices with consistent follow-up and clear communication you can protect your business’s cash flow and maintain client relationships.
We have a Getting Paid Ontime Toolkit which you can find here
Debt Collection Management Toolkit
The Debt Collection Management Toolkit is also part of our BB club (you can choose BB Club or BB Club with HR.