There are numerous strategies and collection techniques at your disposal when you’re collecting outstanding invoices, with some credit control processes carried out in-house and others outsourced to professional collection agencies.
For most SMEs, outsourcing debt collection activity to a professional agency is the most effective and successful solution, saving you a considerable amount of time and resources.
In addition, experienced debt collection agencies have a much higher success rate and provide more specialist services, such as tracing, credit reporting, and more (to view Direct Route’s full services, visit this page).
As part of your credit control process, and often as a last resort, it may be that you look to take legal action to recover the invoice amount.
However, before jumping straight in and suing your client for late payment, there are a few things, we recommend considering, For example:
What is the value of the debt?
It’s important to put a value on the outstanding debt and compare this to the potential costs of instructing a solicitor to take legal action against the late payment of commercial debt.
Ideally, the value of the debt should outweigh any court costs for it to be meaningful to you, i.e., will suing your client provide you with the return you require. Is there a financial incentive to suing?
The most effective collection method for smaller outstanding invoices is instructing a professional debt collection agency (who may also use the legal system if required).
Check to make sure the debt is outstanding.
We understand that mistakes happen, and things get missed, and sometimes the customer may honestly believe there is no payment required for various reasons. Talk to your customer and other members of your credit control team and check all the paperwork and communication surrounding the debt. Gaining clarity will provide insight into which party may have the stronger case if the issue went to court.
Consider, even if you sue, how likely are you to get paid?
If your customer genuinely does not have the money, even if the court rules in your favour, they can’t force them to pay.
At Direct Route, our team can support you by keeping the lines of communication between yourself and the debtor open, often resulting in a much higher probability of the invoice being settled.
Late payment of commercial debts
Collecting debts through the legal system can often be overly complex and drawn-out.
It takes up a lot of your time and valuable resources.
Legal action will also incur additional expenses, adding stress, anxiety, and a higher contingency.
Before taking legal action, consider:
Working with a commercial collection agency. For example, when an invoice becomes overdue, instructing a debt collector and working with a professional team can help you achieve payment in full as you utilise robustly and tried and tested collection processes. For example, as part of the process, the debt collector can issue more formal overdue payment letters (very effective), enabling you to achieve positive results, so you can get back to business in no time.
Settlement offers – can you agree with the debtor on a fixed amount to settle the debt quicker and more efficiently? This is a good option if your debtor is considering filing for bankruptcy or planning to close completely, allowing you to collect payment before it becomes impossible. However, it’s important to understand that a settlement does mean you will receive less than what was originally owed.
Payment plans – is it possible for the debtor to pay off their outstanding invoice in increments? Again, allowing you to collect the debt without resorting to legal action. This option could be faster than going through the courts. However, you have no concrete assurances that the debtor will make all the payments Hence, there is an element of risk (however, you can still sue for any outstanding balances).
Sued by debt collectors
Taking legal action over outstanding invoices will not provide you with instant results; in fact, the process can take a considerable length of time:
Default judgements – the debtor does not fight your claims, but payment can still take 4 to 6 months (taking this to 9 months if the courts are experiencing delays).
The defended lawsuits – can take 9 to 18 months to reach a trial date; this route can be very costly.
Serving – serving the debtor with an official notice of the lawsuit can be problematic if the debtor chooses to go into hiding or sneak around. This can drag the process out considerably.
Delays – delays of up to a year are not uncommon when suing for unpaid invoices.
A judgement can take between 2 and 6 months after a trial for the court to issue a final judgement. Therefore, it is not until this point that a formal judgement collection process can take place.
Typically, it can take between one and three years to sue and then collect on outstanding commercial debts. The process takes time, money, and a lot of patience, with no guarantees.
Let us help you today.
Whether you’re looking for a professional collection agency to help support small business debt collection or if you would like further information on suing for unpaid invoices and the legal system, we can help.
Talk to us today by calling 0330 229 1991