Business Library

Handling debts owed to you

Collecting money owed quickly is essential. Debts can seriously affect cash flow, usually with a knock-on effect elsewhere in the business. Remember, you can owe money at the same time that you are owed money - this is the norm. The trick is to keep the gap under control!

You can outsource your debt collection needs to a Factoring or Debt Collection company, but it is critical that you have certain internal structures in place to help in maintaining control of credit and cash flow.

Internal procedures - follow some simple rules to avoid bad debts

The first rule is simple - only do business with people who will pay you. To this end, Credit Reference checking is essential for most lines of credit. Before allowing what you consider substantial credit, it is as well to carry out some checks by searches through:

Companies House
Land Charges and Land Registry
Bills of Sale
Bankruptcy Petitions and Orders
Deeds and Arrangements (Private Investigators)
County Court Judgments
Credit information services
Credit reference agencies

Have clear business terms and conditions - any business must issue terms and conditions of business in quotations, estimates, acknowledgements of orders, invoices and delivery notes before the contract is established. Typically, these will include:

Your payment terms
Details of interest on delayed payments
Where applicable, the right to retain title to goods until payment is made
Limitation on liability
A space for the customer to acknowledge that they understand and accept the terms and conditions

Keep careful records - your records should list the full names and addresses of your customer businesses and their proprietors. If you keep these within a computer database, remember that you will need to be registered in accordance with the Data Protection Act 1998.

Make weekly or monthly checks on outstanding invoices, with a cut-off point to start the debt collection process. If possible, insist on payment at time of purchase, either by cash, cheque or credit card.

In any credit transaction, consider seeking a personal guarantee. For a very large amount, go for a third party guarantee, but make sure the guarantor is genuine and that the guarantor is able to discharge the debt if they have to.

Collecting YOUR cash

Profit is useless if you haven't got the cash. Your objective is getting the cash into the bank - fast! How?

Get close to your customers. Make the issue of payment a personal one between you and the debtor or the account administrator or both!
Open new accounts quickly & set proper payment arrangements
Issue proper invoices quickly, making them short, sharp, concise & clear
Set collection targets & priorities and know who to deal with

Methods of settling debts:

Factoring

More particularly a credit control facility, factoring is an arrangement which can enable you to receive a high percentage of the cash due to you from your customers more quickly. Essentially, a factoring company buys your business debts and takes over their management. There is a small percentage charge for the service geared to size of debt and volume. Advantages include:

You can get up to a high percentage of the money owed quickly
Payment is guaranteed
Cash flow, though slightly restricted, is not cut off
When the debt is cleared, the remainder of the monies owed to you are paid, less factoring charges

Click here to get a no-obligation quote on factoring services for your business

Debt Collection Agencies

Depending on your needs, you can choose to outsource your debt collection to a specialist. A collection agency can efficiently help recover overdue debt for you, and once a third party is involved it is often the case that debtors pay faster. The range of available services is broad:

submit individual invoices for collection
transfer the management of part of your sales ledger
transfer the management of all of your sales ledger to a collection agency

Click here to get a no-obligation quote on debt collection

Call in specialist help sooner rather than later. Once a debt collection regime sets in train, it carries on until the matter is concluded. Debtors do not like that - because the creditor always wins in the end.

This is a guide. It may be helpful for you to also talk to a professional in credit management services. E&OE.