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Collecting Debts: Practical Advice for Small Businesses

Collecting debts really can be tricky, especially when you are a small business. Although you might not want to create an awkward atmosphere with a customer, there will still be only one thing on your mind – getting your money back.

Small businesses can often feel vulnerable as bad debt can mean the difference between profitability and net losses. If you are debt collecting, the good news is that there are a number of simple steps you can take to ensure the best outcome for everyone involved.

Placing Due Dates on Bills

  • On the bills or invoices that you send to your customer, make sure you state the due date.
  • Keeping in Contact

  • Regular communication with a company or individual is important when regaining outstanding payments. Address each bill to the contact you have for making financial decisions and make sure you have their number.
  • When there is debt, it is a good idea to call the debtor and ask to speak about the account. Be straight forward but calm with the debtor and let them know when their payment was due. You can then ask when you can expect to receive the payment. At the beginning it is important to try and maintain a positive relationship with the customer. Trying to work with them will encourage them to be cooperative.
  • If the debtor has not paid the debt after a certain amount of time, call them again. You can then ask why the payment has been delayed and whether arranging a payment plan would be a suitable option.
  • Things to Remember

  • Whatever the size of your company, there should be a procedure in place for dealing with debts.
  • Try to find out whether your debtors are having financial troubles or whether they are juggling payments from month to month. Finding out the reason will help you come up with a mutually agreeable solution for you and your customer.
  • Make sure that in your company policy, you have stated the amount of time needed to pass before services with a debtor are discontinued. When it comes to that point with a customer, call them and send them a written letter of warning before discontinuing service.
  • Record all dates and times of your communication with the debtor. If legal action needs to be taken further down the line, this evidence will be helpful.
  • Taking Further Action

    If you have tried to communicate with the debtor but are still not getting anywhere, it may be time to start thinking about other options.

    Using a Mediation Service

    Mediation is often used as an alternative as it is less costly than hiring a solicitor. With this service, an impartial person trained in dealing with situations like these, steps in and mediates between you and the debtor.

    This step can be taken as part of a small claims court and can be useful in reaching a settlement. The cost of a professional mediator needs to be split between you and the debtor.

    Taking Court Action

    This is often something that occurs if mediation has not worked. You can make a court claim for your money or make a claim online if the money owed is less that £100,000 and owed by no more than 2 people or 2 organisations.

    Making Statutory demands

    An official demand can be used to ask for money you are owed. If the customer or business that owes you money chooses to ignore the statutory demand or can’t repay the money, you can apply to court to take further action. You can either apply to bankrupt someone if you are owed £750 or more by an individual or get a company liquidated if you and any other creditors are owed £750 or more.

    For more information about your options, visit Gov.uk.

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