If your business provides products or services on credit (you deliver the product or service then collect payment later), then eventually you will run into a customer who pays late or not at all.
When this happens you need to be careful about how you proceed to collect that debt to ensure you don’t break any laws and you recover the debt as quickly and easily as possible.
As the owner of a professional debt collection agency for small businesses I have seen every type of scenario and know the laws surrounding this issue.
Here is my list of best practices when collecting a small business debt:
1. Friendly Reminder (7 Days overdue)
If an invoice becomes overdue the first step is to contact the customer with a friendly email or phone call to remind them that payment is due. It is best to do this within 7 days of the invoice becoming overdue so they know that you are aware they are late with payment.
At this stage it is often a simple mistake or the customer may be waiting on cash flow to arrive so they can pay your invoice. By touching base you can remind them to pay immediately or at least get a clear answer on when the invoice will be paid.
2. 1st Written Reminder (14 Days overdue)
If after the first reminder they still have not made payment you will need to send a written reminder. This written reminder should also be in a friendly tone, as you do not want to hurt the business relationship over an invoice that is 14 days late.
In your letter state:
- What the letter is about
- The amount owning
- When it was due
- And include a copy of the original invoice.
Be firm and let them know that payment is required immediately or that they need to call and make payment arrangements within 48hrs.
3. 2nd Written Reminder (21 Days overdue)
If the debtor still has not paid or provided a satisfactory response to your first 2 communications it is now time to be very direct and explain that payment is required immediately or further action will be taken.
Remind them of the first letter and the date that it was sent along with all the details of the outstanding invoice.
4. Letter Of Demand (30 Days overdue)
If the debtor has made no contact at this stage it is time to send a letter of demand. We have a great article on How To Write A Letter Of Demand here.
The longer a debt remains unpaid the less likely it is that you will recover the money in full without professional help.
At this stage of the process you may be starting to invest too much time in the recovery process, time that would be better spent working on your business. By contacting a professional collection agency you will save time and maximise your chances of recovering all money that is owed.
5. Refer to a Collection Agency (60 Days overdue)
At JMA Credit Control our solicitors can draft a professional Letter Of Demand on a legal letterhead to show your debtor that this is a serious matter that needs immediate attention.
The introduction of our name and legal Letter Of Demand at this stage is usually enough to instigate immediate payment of the outstanding amount.
If payment is still not made after sending a letter of demand our collection agents will try to make contact via phone a number of times as a last resort before legal proceedings.
After all other options have been exhausted it may be time to issue a compliant and instigate formal legal proceedings. It is highly advised that you get some legal advice before taking this step to ensure you do it right. Our legal team are experts in debt recovery and will answer all your questions and guide you on the best way to proceed.
If you currently have an outstanding debt and would like to talk to our debt recovery experts with no obligation, call us today.