Debt recovery is a challenge faced by all sizes and types of business. It’s best to prepare for late payments in the current economic conditions. Having good policies and processes to make sure invoices are paid is important for the health of your business. 
According to Barclays, three out of five small to medium-sized businesses in the UK have unpaid invoices. The impact on cash flow can prevent businesses developing new products and services and can even push some into insolvency. 
County Court Judgements (CCJs) against businesses are on the rise and the amount owed in the first quarter of 2022 was over £100million. Ideally your credit control processes will make sure you receive payment without having to apply to the Court. 
Your Debt Recovery action plan 
You can put plans in place to control credit and recover debt effectively without damaging relationships with your customers. The first step is to recognize that not all customers are the same. 
1. Manage expectations.  
For new customers, you can request full or part payment in advance until they establish a reliable payment record. It’s a good idea to include this in your terms and conditions, in case they query the requirement. 
2. Review payment histories.  
You can review the payment histories of your established customers. Those who reliably pay on or before their due date are valuable to your business. However, some will be late payers and you should review whether it’s worth continuing to work with them. If they are regular repeat customers you can discuss new payment terms. You can include an incentive to encourage them to make their payment ahead of time. Then you’ll have a reason to prompt them before payment is due. 
3. Create a follow-up process.  
Once you have accepted there’s always a risk of late or non- payment you can create a process to manage it. Don’t wait until the end of a quarter or even a year to pursue unpaid invoices. You can probably set automatic reminders for your customers if you use accounting software. Alternatively, you can make reviewing invoices and payments part of your weekly routine. Always follow-up unpaid invoices promptly. 
4. Set thresholds.  
If you haven’t had a response to your follow-up letters or emails the risk of non-payment is high. Set a maximum time you will wait before moving to the next stage. This might be to contact the customer by phone. People often find it more difficult to refuse to pay when they are speaking with you. There might be a valid reason for late payment, so it’s a good way to avoid misunderstandings. The aim is to agree payment in stages or in full by a certain date. Keep a note of your conversation and, if payment isn’t received, contact them again immediately. Let them know what your next steps will be. 
5. Follow a debt recovery process.  
If you have good processes and follow your own rules legal action is rarely needed. However, if you do need to take this step you can also claim 
interest and compensation under the late payment legislation. The interest calculation is 8% over the Bank of England base rate for business debts. You can add and additional late payment charge of £40 to £100, depending on the amount owed. 
If you prefer, you can consider working with a debt collection professional. You can find out more on the Credit Services Association (CSA) website. 
Please get in touch if you would like advice about setting up and running an effective credit control process for your business. 
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