Being in business is not always easy. There will be times when your business struggles to collect payments from clients and customers. These can be a minor nuisance or they could be a threat to your business’ survival.
Therefore, you need to know how to effectively collect debts owed to you. Here is our quick guide on the best practices.
1. Protect Yourself
Growing your business aggressively (or carelessly) and accepting any customer who comes along is going to cause you problems in the long term. Instead you need to consider if the prospect is going to be a good customer. You could complete a credit check on their business or ask them to provide a financial statement.
2. Set Boundaries
Next you need to determine the boundaries for your services and products. This could be the payment terms (i.e. within 14 days) and / or their credit limit. Stick rigidly to these rules and refuse service if they break them. Otherwise you will encourage further late payments or breeches of the agreement.
3. Keep Good Account Records
The next stage is to keep good account records. These records should include: invoice dates, amounts to be paid and when you should receive the money by. Keeping good customer records reduces the customer’s ability to claim that they’ve already paid you. If you do take your customer to court (see later) then these records could be vital.
4. Remind Them
Once the client is late in their payment you should ensure that your team is reminding the customer of their late payment at predetermined intervals. At first this should be very friendly, asking the client if there is any way that you can help them make payment (i.e. do they need to make a partial payment first) etc. This should be done as soon as the payment is late as it increases the chances that you will get paid.
If they haven’t responded and paid quickly after the reminder, then you will need to consider becoming a little stronger in your reminders. Sometimes businesses will delay payments as long as possible to keep the money in their account for the interest.
5. Keep Collection Efforts
You should also keep thorough records of your collection efforts, including: action taken, responses received and the next step to take. This helps with demonstrating to the customer that they promised to make a payment on a specific date but have failed to do so. Keep these promises of payment as they are re-affirmations of the debt and will reduce their defence should you take them to court.
6. Look For Outside Help
Sometimes it’s good to get outside help. This normally starts with a collection agency that uses trained experts to claim back debts owed to companies. They’ll also be able to advise you on the procedures should you go to court.
7. Take Them To Court
Next you might need to take them to court. This could be a small claims court or another judicial body. They will determine if there is a debt owed and how much should be paid (including interest). They can also be helpful in getting the debt collected by instructing court bailiffs (Sheriffs) to collect the debt on your behalf. Sheriffs have the highest power in the UK and can enter any business premises they like and can seize any goods owned by the debtor for sale at auction.
Conclusion
Collecting debt is a time consuming business but you deserve to be paid for work you have completed. However, it is best to try and prevent this situation from occurring by only accepting customers who are good payers.
How do you collect money owed to your business?
Let us know in the comments.
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