Sponsored Post

In July of 2011 the Federation of Small Businesses (FSB) found that 73 % of small businesses have not received timely payment for invoices in the last 12 months. In addition, 43 % of those surveyed were waiting for amounts of up to $4,999, and 56 % had written off up to £9,999 in revenue due to non-payment. These statistics show that the need to collect debt and chase outstanding invoices is a common problem for small businesses. There are several methods for dealing with late or non-payment of invoices, all of which can be suitable for different businesses and individual debtors.

Debt Collection Services
Employing a debt collection service communicates the obvious severity with which you are taking the matter and can prompt your debtor to pay. Debt collection services have a level of experience which allows them to practice the most efficient methods of debt recovery. Debt collection agencies can also deal with solicitors on your behalf, and relieve you of the necessity of other routine and busywork.

Use of a debt collection agency can have an impact on your relationship with the customer, so if you desire to retain business with the debtor, instruct the debt collection agency on your desire for a non-confrontational approach.

Debt collection agencies often charge based on a percentage of the debt that they manage to recover, often between 8 and 10 %, although some may charge additional fees for such things as debtor tracking. This can make debt collection agencies a positive choice for those businesses who are undergoing cash flow problems. If the debt is not recovered, you have no bill to pay, and should they need to pay the debt collection agency, you can do so out of the payment from the debtor.

Summary: Debt collection agencies can be a very effective way to recover payment from debtors. However, their use can impact on your relationship with the customer or client. The option to avoid up-front payment can be highly attractive, as can the percentage-based fees that guarantee no charge unless the debt is recovered.

Dealing With Debt Collection In-House
In 2009, 19 % of small businesses surveyed by the FSB employed a dedicated member of staff to deal with the debt collections, while the 2011 survey found that over half of small business owners spend up to 6 hours of their working week attempting to recover debt owed to the business. Employing a part-time member of staff for 10 hours every week will cost your business a minimum of £60.80 in wage costs alone - if you can employ someone at the minimum wage.

While you can charge interest and debt recovery fees on late payments, in accordance with government regulations, this may not cover your expenses. The potential extra fees you may recover at the end of the debt recovery process are also of no help to any cash flow difficulties you may have due to non-payment. You may have set a contractual rate of interest. If not, the statutory annual rate is 8% plus the base rate of the Bank of England on the date that the payment became overdue.

Statutory Allowances for Debt Recovery Charges:
Amount of debt recovery fee
Up to £999.99 £40
£1,000 - £9,999.99 £70
£10,000 or more £100

Summary: Dealing with debt collection in-house can be a good way to maintain a positive relationship with your customer. However, it can require a substantial investment of both time and money. You may also find that your debtor will not take you seriously should you attempt to collect the debt yourself.

Legal Avenues
You can choose to engage a solicitor to communicate with your debtor. A solicitor's letter can be a powerful motivator, as it shows a level of commitment to the collection of the debt. The cost of a solicitor's letter can vary, but hourly charges normally start at £50 per hour.

Should you fail in recovering the debt by other means, you can attempt court action. While it depends on your location in the UK, for sums of up to £5,000 you should use small claims court, while debts of between £5,000 and £25,000 are dealt with by the county court, and debts of over £25,000 in the High Court. You may be able to claim for debts of under £100,000 through the HM Courts & Tribunals Service Money Claim Online. A successful judgement still requires some more work to be enforced.

Summary: Legal avenues can be useful to either prompt payment of an overdue invoice or recover a debt that has not successfully been paid by other means. However, it may require the investment of time and money in court appearances and solicitor's fees.