Business Debt Recovery: Top Tips For Businesses

Most, if not all, businesses, regardless of the sector in which they operate, are likely to need to pursue an unpaid business debt at some point.  For most businesses, it is critical that the collection of outstanding debts is managed efficiently to assist cash flow.

This blog aims to provide practical steps which businesses can take to avoid bad debt and reduce the risk of invoices being paid late or not at all.

1. Know who you are dealing with. Verify your customer’s identity, trading status and ability to pay before providing them with any goods and/or services. Think about running a credit check on your customer. Establish who will be your contact(s) and who will be responsible for paying your invoices. Make sure you have entered into an agreement with the company to who you will be providing the goods and/or services in order to avoid any complications later in regards to dealings with subsidiary companies. 
2. Set a credit limit and stick to it. Running a credit check on your customer at the beginning of the trading relationship will enable you to set a credit limit. The credit limit can always be reviewed later on once a trading relationship has been established. 
3. Use terms and conditions. Good up-to-date terms and conditions can be vital if a dispute arises over non-payment of invoices. Terms and conditions are the basis upon which you will do business with your customer so it is important to get them right.  It is always best to get advice from a commercial solicitor when drafting or reviewing terms and conditions. Terms and conditions should be provided to your customer at the start of any agreement and ideally referred to in any subsequent correspondence. If possible, get your customer to sign your terms and conditions and return them to you. Your terms and conditions should set out payment terms, the consequences of late payment and the penalties which will apply if the terms and conditions are breached. These consequences and penalties can be used to apply pressure on the debtor should an issue arise regarding non-payment.
4. Abide by your payment terms. Be clear what your payment terms are and that they must be complied with. Before deciding what the payment terms should be, think about who you are trading with and how quickly you will want them to pay. Also, think about whether you want the customer to provide a deposit before any goods and/or services are provided. Make sure your employees know what the payment terms are and the importance of them being adhered to. 
5. Invoicing. All invoices sent out to your customer should be addressed to the correct entity, include a clear breakdown of the goods and/or services provided and refer to your terms and conditions. You should also provide details of how the invoice can be paid and what the payment deadline is. Once the goods and/or services have been provided, make sure you are promptly issuing an invoice. Any delay in sending an invoice to your customer is likely to delay payment.    
6. Credit control. Put in place an effective credit control system so that unpaid invoices are chased once they become overdue for payment. A mixture of telephone and email chasing works best. When chasing for payment of invoices by telephone, make a written note of when the telephone call took place, who you spoke to and what was discussed. When chasing for payment of invoices by email, keep a copy of all emails. Telephone notes and emails will be helpful to any solicitor you may have to instruct in the future to pursue an unpaid business debt. 
7. Resolve problems and excuses as quickly as possible. If your customer raises any issues in regards to the goods and/or services provided or the amount payable, resolve any such issues as soon as possible. This is likely to result in the debt being paid more quickly and may also improve your trading relationship with your customer. If your customer is making excuses as to why the outstanding debt has not been paid, have processes in place to deal with this. For example, if the customer claims not to have received your invoice, send it to them again in a way which can be traced, e.g. by email. 
8. Keep accurate records. If you have to instruct a solicitor to pursue the outstanding debt, your solicitor will need all correspondence and documents relating to the debt. This could include the contract entered into, purchase orders, invoices and other written correspondence that evidence how the debt has arisen and your attempts to collect the debt or negotiate a settlement.