Member Article

Debt recovery for SMEs

Whether you are a sole trader, a limited company or a large, established business, having a reliable cash flow is essential for survival and success. Debt recovery for SMEs should involve a recovery procedure, meaning that you can reduce the risk of non-payment and writing off invoices. Here are Commercial Domestic Investigations top tips on debt recovery for SMEs.

Make your terms clear

By clearly defining your credit policy or payment terms, you are able to proceed with debt recovery action if payment is not received. Ensure that any quotes for work are signed, or confirmed in writing by the customer. For the procedure to be effective it is important that your policies and terms are understood and consistently implemented by everyone involved.

Know your customer

It is important to gather as much information as possible about the people to whom you are extending credit. Issue new clients with a credit or account application form; this gives you some information about their business and about the responsible parties. Credit reporting your clients can give you a clear overview of their payment history. You should establish the legal entity of the clients you are working with, are they a limited company, a partnership or a sole trader? Different information is required for different entities, and the liability of debt can change too, make sure your knowledge is up to date, read our guide on understanding legal entities.

Make a plan

Part of your debt recovery procedure should include overdue account letters, there is no need to go overboard, a statement and a couple of overdue account notices is enough. Make it clear what will happen if payment is not received and if they fail to pay then escalate the matter to a debt recovery agency. Keep on top of any debts and don’t waste time with ineffective recovery, the older a debt becomes the more difficult it is to trace.

Tone it down

When clients fail to pay it can be frustrating, usually most clients just need a gentle reminder that their invoice is overdue. Debt collection is an escalating procedure so there is no need to go on the attack with the very first communication. You are more likely to resolve an issue if you are polite and courteous and more likely to maintain a strong relationship with your clients.

Get a firm date

The aim of debt recovery is to take an immediate payment or a promise to pay in full the same day, however if you are unable to secure this promise then get a commitment to pay on a specific date so that you can follow up with them to receive a payment.

Keep a record

Record everything, not only for your benefit but also in case you need to take court action against the debtor. Your case is more likely to be a success and will definitely be easier to deal with, if you have a record of all communication with your clients.

This was posted in Bdaily's Members' News section by Steve Hall .