Chasing debts
Article Date: Sep 14 2005
Late payments and outstanding debts are the curse of growing businesses. Bad payers can really mess with your cash flow and, in some extreme cases, businesses have gone bust purely because the revenue due wasn’t received.
The old adage ‘prevention is better than cure’ certainly holds true when it comes to overdue payments. To protect your business, the first step is to make sure your customers know and understand your credit terms. The usual method is to print terms clearly on the invoice. As soon as your customer has overstepped the mark and the bill is overdue, you can then ask for the money you are owed. This should be done politely in writing, preferably by fax, with a follow-up in the post.
If there is no reply within seven days, check that the details of the invoice are correct and that you have quoted all the information the customer needs to identify it – for example, the customer’s own reference code. Once you have checked all this information is included, fax the overdue invoice again. Phone the company to check it has been received. If you cannot confirm this, consider following this up with a letter sent by recorded delivery.
If you don’t get a response, make a phone call to find out what the problem is. Do not assume that the customer has no money; there may be queries on the account or other problems. It’s always best to keep the lines of communication open. Find out the apparent reason for the non-payment and perhaps negotiate.
Use this phone call to find out if the customer has a regular weekly or monthly cheque run and find out the day on which this is done. Try to extract a promise of payment. Keep calling the company, especially two or three days before the cheque run. You need to tread a fine line between harassing them too much and keep the pressure up. Do not call and then drop it for a few weeks; all your previous chasing will be undone. It’s best to keep up a steady and persistent guerrilla warfare! If the cheque run date passes without action you know there is still a problem.
If you usually deal with an accountant or bookkeeper, try speaking to the managing director. Don’t be fobbed off with promises that they’ll find out and get back to you – stay on hold if necessary while they investigate. If they say, ‘The cheque has been posted,’ ask for the date this was done, whether it went first- or second-class, how much the cheque was for and what the cheque number is. If the cheque does not arrive, consider collecting the money in person; this is a tactic used by HM Revenue & Customs. Get the cheque cashed as soon as possible, so that it cannot be stopped.
If all previous steps have failed, it’s time to pull out the big guns. Send a formal letter, preferably from your solicitor, either threatening to take legal action to recover the debt or to start bankruptcy or winding-up proceedings. You could also threaten to use a debt collection agency. Keep a copy of all correspondence.
Obviously the legal route is your last resort, but don’t be afraid to use it. Your company is entitled to the money, so don’t shy away from collecting what is due to you. Ask your solicitor’s advice and evaluate how far you should sensibly go to collect the debt before cutting your losses.
