Understanding the debt collection process can help your business be more successful in recovering the money you are owed, whether from outstanding invoices or late payments.
Late payment is a huge problem for businesses in the UK. Not only does it have a negative impact on your overall cash flow affecting your day-to-day operations, but it can also cause serious and long-term damaging repercussions.
Having robust credit control strategies and debt recovery processes in place can drastically reduce late payments and ensure you get paid on time – every time.
(Make sure to check out our services to see how we can help support your debt recovery process).
Below we outline the debt recovery process UK in more detail and some steps you can implement into your credit control practices.
Debt collection guide
Helping to keep your processes and procedures in check, make sure as part of your credit control you:
Make sure your payment terms are up to date, contain the correct and relevant information, and outline your payment expectations from the very beginning. You also need to make sure you send your customers a copy of your payment terms, including the types of payment you accept, how long clients have to pay their invoices from the date of issue, the currency you would like to be paid in, etc.
To ensure prompt payment, built into your payment terms could be:
Credit freezes – where you will no longer work or supply goods and services until the overdue invoice has been paid.
Late payment charges – you are entitled to add interest and late payment charges on all overdue invoices. These additional charges will often make debtors pay promptly going forward.
All outstanding invoices will be passed to a professional debt collection agency – having a third-party act on your behalf can ensure a successful outcome while also maintaining relationships.
Legal proceedings – often the last resort, legal proceedings will mediate between the parties carried out through small claims court.
Once you have your payment terms in place:
Carry out credit checks on new customers – it’s important to check the creditworthiness of new customers before you set and agree a credit limit. This reduces the risk to you of providing credit to a potentially bad debtor.
Make sure you have contact details – if you have a new customer you are offering credit to, it’s important that you gather their contact details for your records – this will also be important when it comes to invoicing.
Invoice your customer as soon as possible – if you delay sending your invoice, then you are, of course, delaying payment. So make sure you invoice straight away and confirm all payment terms with your client, so everyone is aware of expectations and payment due dates. You must also ensure that all relevant information is included on the invoice,
including named contacts and any purchase order numbers.
Monitor payments made – if your payment terms are Net 30 days of the invoice date (industry standard), we recommend sending an email seven days before this date as a reminder of when payment is expected.
Follow up – if an invoice is not paid and it is now past the due date, you must follow this up asap. Send friendly reminders and make sure to pick up the phone and speak to the person responsible for the invoice.
Ideally, companies should have set procedures in place to recover overdue invoices quickly and effectively.
Procedures such as:
Step 1 – issue late payment letter – this initial letter should be sent to the relevant person requesting immediate payment or the reason why payment has not yet been made.
Step 2 – call the client – if payment has still not been made, speak to the relevant person responsible and try to establish the reason for late payment or agree on a date for payment of the outstanding amount.
Step 3 – send a final letter informing the client that the debt has now been passed to your chosen debt collection agency. Your chosen agency will then get to work recovering all outstanding amounts owed to you.
Commercial debt collection agencies have robust and stringent processes and procedures in place to provide you with the best possible service. Open in all of their communications; processes can include how to deal with a customer not paying, a debtor who is uncontactable, debtors who have left their last known address (`gone aways`), debtors who have ceased trading, and more.
At Direct Route, we want to help you take back control of your cash flow, receiving prompt payment, and implementing robust credit control procedures.
With skilled and trained collectors, we ensure you receive an effective and seamless debt recovery process, helping with business debt settlement, collecting on overdue invoices, and acting as an extension of your team; let us help you today.