How is Debt Collection benefiting Small Businesses in the UK

Following the pandemic Small Business Debt Collection is helping economic recovery. For any small business, late payment is a serious threat to the finances of any enterprise. This serious threat can become critical overtime and threaten the existence of any small business.

According to recent research from GoCardless, 2 in 5 SME businesses in the UK have serious cash flow problems as a result of late payments. A staggering 58% of SMEs also think that unpaid invoices have out their business at serious threat of closure.

If you are a small business owner and attempts to get your invoices paid have failed, you need to consider a professional small business debt collection service. The outdated method of using costly solicitors is a thing of the past. In the UK, Hundreds of millions of pounds are recovered by Professional Debt Collection agencies. From Debt Collection Birmingham to Debt Collection Brechin, there are nationwide solutions.

When is a payment considered to be late?

If you are considering a small business debt collection service, the first thing you will need to ascertain is the overdue payment is actually late. Invoice payment terms should always be made clear to avoid confusion.  This should be made clear in your invoice’s payment terms.

Most small businesses implement net 30 payment terms. This means that the customer has up to 30 calendar days to discharge the invoice with payment in full. Some small businesses implement longer payment terms such as net 45 or net 60. Depending on the industry, some SME’s also have shorter payment terms such as 7 days.

If you didn’t include payment terms in your invoice, the law states that a payment can be considered late if it still hasn’t been paid 30 days of the invoice being sent. Alternatively, it can be 30 days after they received the goods or services provided.

After the thirty-day period has passed, there are various small business debt collection options available to pursue the matter.

First steps in the small business debt collection process

If your small business is dealing with a customer not paying, it is imperative you do not overreact. Very often, customers may simply have ‘forgot’ to pay or there may be a delay in their accounting chain for payment. Sometimes a reminder email, letter or telephone call may prompt payment from the customer.

If a couple of attempts to solicit payment fail and, your business still hasn’t received payment, you may need to send a recorded delivery letter. This can be referred to as a letter before action or a letter of demand. This is increasing the severity of the situation and lets your customer know that you are committed to getting your invoice paid.

If you send a letter before action and still don’t get payment, it is time to consider professional debt collection services. It is worth noting that at this point, you can also start to apply interest under the late payment of commercial debts act at 8%.

Professional debt collection options

There are two main options for professional debt collection in the UK:

These are accredited Debt collection agencies or Solicitors and Law firms.

Usually in the UK, Debt Collection services are considered the most cost-effective option. This cannot be said for all Debt Collection agencies but many offer a transparent fixed fee solution. For example, Federal Management are widely regarded as the best Debt Collection Agency in the UK. They offer a low fixed cost comprehensive service and have commission rates from as little as 6%.

If your Small Business is owed money from a private individual, then a personal debt collection agency like Frontline Collections is the best option.

Most of the time, hiring a small business debt collection agency will provide a successful outcome. Communications from an authorised firm with a great reputation is far more likely to be a motivator for payment than a letters and phone calls from your own business.

Where the customer is trying to evade paying the invoice by spurious means such as frivolous excuses or disputes, using a solicitor can be more appropriate.

Using a debt collection agency to collect overdue invoices should never be seen as a negative thing. No small business wants customer that do not pay. Equally important though is the fact that you should only hire a professional debt collection agency. The risk of working with aggressive no win no fee debt collectors should not be an option. An over zealous debt collection company can seriously damage your reputation as they will be an ambassador for your business in their actions.

Working with a well established and accredited debt collection agency is essential. Platforms such as trustpilot or google offer reviews from clients of a debt collection agency so it is wise to do a little research.

Taking a customer to court for non-payment

Another option to for a debt collection process is taking the matter to court. This should be considered a last resort as it can become very expensive and protractive. Very often a judge will need to be satisfied that you’ve exhausted all your other options before litigation.

 There are several different steps to debt collection via court. First, you’ll need to make a County Court Claim. This has to be correctly worded and following civil procedure rules protocol.

Assuming that the customer does not lodge a defence, you would then receive a county court judgment in your favour.  This ratifies the amount you are owed and will require the defendant to pay the principal debt, interest and costs.

If the defendant fails to pay the Court Judgment within 28 days, you may well end up having to use a Debt Collection firm to enforce the judgment anyway. This is why so many Businesses turn to Debt Collection Agencies in the first instance.

What if my customer is International?

If your customer is based overseas, the situation can be more difficult. Trying to issue your own claim overseas is perilous. You will need to be aware of local jurisdictional protocols and it can be a minefield. Working with experienced International debt collectors will mitigate this hazardous task. Always seek professional advice from experts before embarking on a solution for this.

Ellen Hollington

Ellen Hollington is a freelance writer who offers to ghostwrite, copywriting, and blogging services. She works closely with B2C and B2B businesses providing digital marketing content that gains social media attention and increases their search engine visibility.