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Posts Tagged ‘debt recovery’

If the small firm who completed the contract is newly formed then they will be keen to get established in the business area they are in. Whether they are newly formed or established, when presented with a large firm who are reluctant in settling their bills, the small firm will have to try and convince them to pay in full, while at the same time not hindering the chances of further work.
A new firm might well have been set up with help from government agencies such as Business Link, who would have given them full information on managing their business including debt collection, so they should either consult the information pack or go and talk with Business Link before they do anything else. An established firm may have found themselves in this situation previously and may have a Debt collection strategy in place. Also, there is legislation in place to help small companies in debt collection from larger companies in the form of the “Late Payment of Commercial Debts (Interest) Act 2002”, which authorises the small firm, i.e. the creditor, to make a one off charge against the large firm, i.e. the debtor, for an overdue payment, as well as this they can also charge interest on the outstanding debt. The creditor has the option of not applying these charges, but it would be a wise move to try and agree with the debtor that this should be part of a updated contract, so that both parties have agreement that payments will be made on time and there will be no need for a debt collection process.

Not withstanding advice from Business Link, a new small firm may wish to consider three choices for debt collection; consult with a solicitor who specialises in debt collection, find a debt collection company in the area, or finally check out Debt collection software and take on the debt collection themselves.
These three choices are also worth thinking about for an established firm, which has a debt collection strategy, in case they wish to revaluate their procedures.

Taking on the services of a solicitor or debt collection company may be costly for a small firm, as they are paying for the skills of each party in the hope that they will be successful in recovering the debt, creating Debt collection letters that may work first time. The positive side is that they would not require much time from the small firm, who can be left to get on with their work while the other party contacts the debtor for settlement.

By doing the work themselves, the small firm has to make adequate resource available if they wish to succeed and so the person operating the debt collection software should ideally have some knowledge of the legal aspects and also have a good standard of spoken and written English. This latter skill is needed when creating debt collection letters as these can be so crucial in the debt collection strategy as they form a major part of the record of dealings between creditor and debtor. The positives are; the small firm is in control of the debt collection strategy, they pay a one-off price for the debt collection software package, and it is reusable for future debts at very little cost.

In situations where a small firm has provided services or products to a larger firm over a long period of time and has been paid promptly in the past, it could come as a surprise when the latest invoice goes beyond the final payment date. The small firm could be debating Debt collection procedures, but hopefully they will firstly contact the larger firm and try and understand why the latest invoice has gone strategy could be dependant on the end result of this conversation and if the larger firm has opened up to having some financial isues, perhaps from some of their own bills still awaiting payment, they could well offer a part payment on account. This could be acceptable in case both companies are keen to keep their mutual good relationship, and as the larger firm have been open and honest about their side of the issue the payment on account could be the best interim fix.

However, if the larger firm does not give a suitable reason to the small firm, then they could feel that they are being used as a free credit service and not as a trusted supplier. In this case they could well feel fully justified in exploring their choices for Debt collection, being mindful of the cost component of every path as the unpaid debt could represent a sizeable part of the cash flow for the small firm. The usual path for Debt collection could be seen as a visit to the solicitor to discuss the issue, but this consultation could have a fee to it and suppose the preferred solicitor is not very experienced in Debt collection, the small firm could need to look elsewhere. The next logical path could be seen as a Debt collection business, if there is one locally, if not then contact could be by phone and email, by which means it is problematic to evaluate the professionalism and integrity of the Debt collection business. It is possible that advertised ones are also the most recent and could lack experience in Debt collection, so it could be best to try somewhere like Business Link to see if they can recommend a debt collection business. It is possible that the Debt collection business will charge based on the value of the debt and so could be a significant amount.

The small firm could also look for Debt collection software so that they can take on the work themselves, but they will need to assess Debt collection packages carefully since the quality of the instruction book or on-line help could be their key to grasping not only how to operate the Debt collection software but how to run the Debt collection process to best effect. Debt collection letters form the key in the Debt collection process and the Debt collection software will need to have clear instructions on how to create suitable Debt collection letters for each phase of the Debt collection process, should the first of the Debt collection letters not prove successful. A more suitable solution to clear instructions, or perhaps as well as, would be to have the Debt collection software package include templates or samples of a suite of Debt collection letters, so that the small firm can use these as a starting point when generating their own Debt collection letters. The Debt collection software will also need to have some sort of database interface so that key activities in the Debt collection process can be stored, such as when Debt collection letters are despatched, registering incoming letters or emails and then permitting reports to be produced that will be useful as evidence should the Debt collection software operation not produce the required results and the large firm has to be taken to court.

In the present recession, cash flow for organisations may be an issue, in that if they are owed money for work or sales they will have to consider their next steps on Debt collection. Do they take it on by talking to the debtor company or do they employ the services of a solicitor to chase the debtor for payment. A Debt collection agency could offer curiously tempting deals such as no win no fee, but such agencies may assume that merely a minor payment from the creditor is a win and so charge their fee, which may be calculated on the whole debt. Not all Debt collection agencies would do business in this way, but would their web sites expose this level of detail and so give the creditor the information to make an informed decision? The other option is to perform the Debt collection in house by making use of a Debt collection package, comprising Debt collection software and Debt collection letters. Such packages can be purchased from under £50 and businesses who sell these packages would be expected to be able to give full details of what is included and maybe also some idea of the time required to operate the application for a typical Debt collection process. The costs for a solicitor or a Debt collection agency are likely to be on a sliding scale and would typically be based on the debt value, although a solicitor may charge a set fee for the first letter, any further Debt collection letters may be an additional cost perhaps.

When operating Debt collection software packages both the creditor and the Debt collection software should know about the Late Payment of Commercial Debts (Interest) Act 2002, which was originally set up in November 1998 and amended in August 2002. This law allows a creditor to claim both a one-off charge and also interest charges as soon as an account becomes overdue. If the creditor has not referred to this act in the original contract with the debtor, there is nothing stopping them from applying the aforesaid charges. However it may bring in some complaint from the debtor to be suddenly faced with a higher invoice and this may bring in problems should the creditor later apply for a new contract with the debtor firm. To try and save this from coming about it would be best for a creditor that didn’t refer to the legislation to contact the debtor either by phone or by personal visit and courteously tell them that the invoice is late and they would not wish to have to apply the charges that they are entitled to do by the legislation.
If this fails to stir the debtor into payment, then the creditor will need to use the Debt collection software in earnest and write Debt collection letters, which should already be contained in the Debt collection software as templates, ready to use after the debtor details are entered into the database. The creditor should be able to alter the Debt collection letters text to suit their situation or relationship with the debtor, but they must resist using emotional language as this will show them in an unprofessional light with the debtor. By using this strategy it is hoped that the debtor will be persuaded to settle the invoice and also settle up on time in the future.

There may well be an air of disappointment when a small enterprise find that an invoice for work completed or equipment sold to a large enterprise has gone past the agreed authorisation for payment date and remains overdue. The disappointment is that in the past all of the work completed or equipment sold have been paid for within the agreed authorisation for payment date but now the small enterprise needs to have the revenue coming in so that they can pay their accounts. The choices that the small enterprise may be aware of are likely to be solicitors or Debt Collection firm and unless the small enterprise has tried Debt Collection themselves in the past they are unlikely to know about Debt Collection Software, which can provide an in-house
strategy.

If the small enterprise wishes to use the lawyer or Debt Collection business choice then they must select one that is skilled in commercial Debt Collection, and hope that they use ethical strategies when dealing with the large enterprise or some harm may come to the business reputation the small enterprise has built up over the years. Cost plays an important role in this option since the small enterprise is in reality taking on the lawyer or Debt Collection business to do the Debt Collection on their behalf and so their charges need to be met. The typical way of recovering these costs is to levy a percentage of the debt once it is cleared or sometimes a fee is required at the beginning of the operation, perhaps if there is some uncertainty of the debt being cleared in full. The actual charge can be 8% to 10% or more which might be a substantial loss if the small enterprise has need of all of the invoice value.

Debt Collection Software on the other hand is a different strategy for although it will cost the small enterprise less money to pobtain they will need to supply resources if they are to make the investment pay off. However at an initial price of under £100 Debt Collection Software may be worth a punt, especially if the small enterprise already has personnel that have good English skills so that they can create Debt Collection Letters. When looking at Debt Collection Software the small enterprise must look for a application aimed at newcomers to the commercial Debt Collection operation. It must also be up to date with legalities that are relevant to commercial Debt Collection such as the “Late Payment of Commercial Debts (Interest) Act 2002”. This law was set up to try and get larger organisations to pay accounts from smaller organisations on time by permitting the small enterprise the decision of charging a one off fixed fee for the work already undertaken in the Debt Collection operation and also to be able to charge daily interest on the outstanding debt. The Debt Collection Software must contain a tutorial on the Debt Collection operation and also on how to create Debt Collection Letters. To aid this, templates of Debt Collection Letters for all of the stages of the Debt Collection operation must be provided so that the personnel in the small enterprise have a good grounding in how to create good quality Debt Collection Letters and so try and achieve a successful Debt Collection operation by getting the invoice cleared.

In the present financial climate and when banks are still reluctant to lend finance to small firms it might come as nothing unusual to find that small firms have to wait longer for bills to be settleled for work done or goods supplied to large firms. It might be that the large company is itself waiting for its own bills to be settleled, or it could be that they simply want to keep hold of their cash for as long as possible. While the small company might appreciate the difficulties that the financial climate is causing to most firms, their own difficulties will be their first priority and so they will be persuaded to press the large company to clear the bill. They might imagine a court case as one strategy but this might work out expensive especially if there is no guarantee of winning and being awarded costs from the large company, so this may well be seen as a last resort to be used only when all other Debt collection processes have failed.

The first move that the small company should make is to contact with the large company and find out why the bill has gone past its final date for payment. The reply from the large company might well decide the tactics for the small company, but they need to be aware that they will have to make efforts in Debt collection before they will be permitted to go to court, so they might as well make the effort and try and recover the debt. The small company might well look for the most economical strategy for Debt collection and so the charge of some 10% or more of the outstanding debt, which is levied by lawyers or Debt collection firm, might seem rather high when the small company has a low cash flow. Debt collection software however, can be purchased for under £100 and this can be seen as an inexpensive way for the small company to carry out the Debt collection process themselves. The small company need to evaluate Debt collection software packages carefully, paying attention to the Debt collection letters side as these form the centre of the Debt collection process since they show information flow between the parties, which might well be crucial if the case goes to court.

A good Debt collection software package need to give the user a good grasp of the Debt collection process by the use of documentation or on-line tuition. The best way to write Debt collection letters need to be detailed, while by the supply of examples of Debt collection letters relevant to each stage of the Debt collection process, the small company need to be able to write their own, customised Debt collection letters. The small company will be advised to make allowance for resources being essential for the Debt collection software, such as one or more persons to run the system, a suitable computer to install the Debt collection software onto and a printer to print hard copies of the Debt collection letters. The Debt collection process should be a part-time process for the small company so the people aspect might not be so bad and of course if they need to handle future Debt collection they are already set up with no extra cash to pay out.

By using people with a good standard of English and the guidance from the Debt collection software instructions, it is hopeful that the Debt collection letters will persuade the large company to clear the bill and not to delay settlement in the future and so a court case need to be avoided.

These can be bad times for small organisations trying to make it during the financial situation even though the government says it is trying to assist small organisations. The finance houses have been pressurised to assist small organisations with loans but to date this has not been forthcoming, unlike the bonuses paid to top bankers. Given this situation, when a small company finds that an account sent to a large company for which it has done projects or furnished items, has now gone past the final payment date and still is unpaid. The small company could have accounts of its own to close, perhaps tax accounts and the last thing a small company wants is to get in the tax man’s bad books, for the spectre of the grim reaper holding a winding up notice could be the stuff of nightmares. I hope that referring to “tax man” in the last sentence does not offend the ladies for I am sure that there are many female tax inspectors who would be only too pleased to use any tactics to get the revenue money.

The small company could well be tight on money or if they have previously used solicitors or Debt Collection businesses, they could be reluctant to pay the fees they charge, even if they are paid as a sacrifice from the final payment. Even if the solicitors or Debt Collection businesses have skills in business to business Debt Collection and their success rate is good, the fees remain the same.

For such a small company an option is out there but only if they are happy to put some work in themselves, the answer could be Debt Collection Software. For a payment of under £100 the small company can buy a good Debt Collection Software suite and for their part they will need to set aside adequate resources to give the Debt Collection project a chance to work. There will be a cost in time and effort in finding out about the Debt Collection process but the Debt Collection Software should come along with a user guide that should provide this information, especially any current Acts of Parliament that the small company can use. The important part of Debt Collection is that the large company needs to understand that the small company needs to have their account paid and puts this forward in an unemotional and professional manner. This is achieved by creating Debt Collection Letters, which form the heart of the Debt Collection process and the Debt Collection Software should have a good tutorial in how to generate good quality Debt Collection Letters. The Debt Collection Software should also provide a set of samples which should show what the small company should generate for each stage of the Debt Collection process. The small company could use these samples as the starting point for their actual Debt Collection Letters as they progress through the Debt Collection process. The small company should have access to update the samples to include their own company details and icons as required as this would add to the professional look of the real Debt Collection Letters.

It should be possible, by use of the Debt Collection Software, to generate good Debt Collection Letters that should persuade the large company to pay the account and keep up the good business relationship that they have with the small company.

It can be tough to know what action to take when a large company is late in paying the latest bill for work done or products supplied by a small company. The small company could have done work for the large company many times and expects to be paid on time as before, but this could be a troublesome time for the large company, especially if they are also waiting for unpaid invoices from even larger businesses.
Rather than resorting to Debt collection strategies at once, the small company could well want to take into consideration the relationship they have built upwith the large company, as jumping in too soon with threatening Debt collection letters could so easily ruin that carefully built up relationship.

The first thing the small company should do is touch base with the large company and jog their memory that the payment is late and see if they can do something about it. If this fails to produce a payment of some kind at least, then the small company could well wish to try a different approach for Debt collection, such as a solicitor who specialises in Debt collection, a Debt collection organisation, or buy a Debt collection software package and take on the Debt collection in-house.

There are pros and cons to each of these choices, the solicitor and the Debt collection organisation will make charges, either up front, or after completion of the Debt collection method, but they are likely to be based on the value of the debt and so could be significant. They could also require part payments if the Debt collection method takes longer than anticipated, such as for sending out multiple Debt collection letters. They would be expected to do a professional job and have experience in Debt collection and so they could well achieve a good success rate. The Debt collection software would be a one-off purchase but would need an employee to operate it if the small company is to get payback out of the Debt collection software. How successful it is depends mainly on how good the Debt collection software package is, such as the quality and content of the on-line help, or a written instruction manual that has a tutorial that can be used to train or direct the operator through the Debt collection method, in particular in the composition of Debt collection letters as these form the core of Debt collection. A good package would include templates of Debt collection letters that would demonstrate what sort of things to write at the different stages of the Debt collection method if multiple Debt collection letters are required. The Debt collection software should identify the need to keep the phraseology of Debt collection letters on a professional and ethical standing as these demonstrate the professionalism of the small company and any use of emotional or unethical phraseology could so easily break up the business relationship that has been built up, whereas a solicitor or Debt collection organisation would need to charge for each and every future debt that they are asked to chase, although the Debt collection software could have a cost in a part of a workers job and any printer consumables and obviously the postage of Debt collection letters.

In normal circumstances a business will need a bill to be paid in the month after the invoice date but this must be stated in the contract and agreed by both parties, in writing. In the absence of such an agreement then in the event of dispute the law specifies 30 days from the invoice date as the last date for settlement. Late payers can be the bane of small business accounts, as there may be a trend to some; perhaps they send payment two months after the invoice date or perhaps they are normally on time but are on occasion late. In any event it makes business tough for the small business to plan the future work as they may be required to pay for goods that were used for the project concerned and whilst they may well have revenue to pay their suppliers, they may have to buy further supplies for other contracts and pay salaries, of course. The late payer can cause problems in creating a deficit in the books later on when it is time to pay their own bills, so how can the small business persuade the debtor to pay up without losing a valuable customer? In any event the last thing the creditor wants to take place is to have to write off a debt, so they must make the effort to collect them.

For a small business the choice may well be between doing the Debt collection themselves, giving it over to a solicitor or commissioning a Debt collection organisation. The last two options can involve significant costs for a small business and so may be discounted by many. The in-house path will need commitment in man hours, but by the use of a good Debt collection software package the time spent can be optimised to do the work efficiently. Some applications are inexpensive, not cheap, and are on sale for under £50 including VAT. They possibly come with either templates for the Debt collection letters or examples and instructions in the accompanying manual or e-book. These Debt collection letters are at the centre of the Debt collection process as they are what the debtor will get and can make or break the success of the process.

The Debt collection letters should be created in cool, unemotional and formal terms so that they don’t upset the debtor, whilst similarly diaplaying to them that the creditor is determined. Ideally the Debt collection software should contain templates as this would make the experience of editing the Debt collection letters easy, next best would be an e-book, such as a pdf file from which example Debt collection letters can be copied and then changed to format them for the debtor business. The least preferable method is to have to manually edit a letter from an instruction manual as this it time consuming and can introduce errors, which are NOT wanted in Debt collection letters.

The instructions should detail the stages of the Debt collection process and the Debt collection software should also use these stages for performing a Debt collection action. This process should recover many debts and will hopefully be a reminder to the debtors that you should be paid without delay next time. However with a view to needing to escalate a debt to using the legal system should the in-house process fail; the Debt collection software should have the ability to record the activity at each step of the process, including those carried out from within the Debt collection software and other activity, such as incoming letters. In this way there is evidence that the creditor has made serious efforts to do the Debt collection already.

In these difficult business times it could be no surprise to see an increase in late payments of accounts from one firm to another, since some organisations will feel that as cash is tight they might as well keep their cash to earn some interest for as long as possible. This situation has little concern for the effect this can have on a small firm that has done work for a larger firm and has seen their latest bill for work done go past its final settlement date. The small firm might well have other unpaid accounts with other larger organisations and so their cash flow might well be under pressure. The small firm might well consider legal proceedings and go to see a solicitor to see where they stand. If the debts have just gone past the late settlement dates, then the solicitor might well advise that they need to pursue the larger organisations to try and get them to clear the accounts. This advice will cost money however, as will any offers from the solicitor to handle the Debt collection activity on behalf of the small firm. The reason for beginning the Debt collection activity is because if the small firm decides that at a later stage they have had little or no success in Debt collection themselves and they wish to go to court, the court will want to see evidence of the work they have done in the Debt collection activity before the case can be heard.

If the debts are many thousands of pounds in total then fees from either a solicitor who specialises in Debt collection or a commercial Debt collection agency might work out to a significant sum. So, the small firm could be well advised to check out Debt collection software and specifically a package that either has a database, or can provide links into an existing database application, such as Microsoft Access or SQL, or Oracle for example. This is necessary because it provides a means of recording the activities that go on as part of the Debt collection activity and these should then be available in a report to show to the court should this step be required.

A key part of the Debt collection activity is the writing of Debt collection letters and the Debt collection software should have a good guide to how to write convincing Debt collection letters. This can be provided by good on-line help, a set of instructions or pre defined templates that can be used as a base for real Debt collection letters, or all of these things. It could be best for the small firm to have one or perhaps two employees handle the Debt collection activity, so that they can become familiar with the Debt collection software, the writing of Debt collection letters and get to know the Debt collection activity itself. The Debt collection software will need to record key activities such as when Debt collection letters are generated, at which stage of the Debt collection activity they are used, register incoming physical mail as well as emails and any part payments that are received, automatically updating the outstanding debt accordingly.

The beauty of Debt collection software is not just that it can make the Debt collection letters easier to write, but that the one Debt collection software package can be used for many debts with no extra outlay, whereas a solicitor or Debt collection agency will make a new charge for each debt they handle.

They say that prevention is better than cure, so in this context it will be better if the small enterprise and large enterprise have agreed a late payment section in their contracts, so that both parties understand the results of delaying payments later than the final date for payment. But if such a section is not present in the contract then at least for the small enterprise, help is available in the form of the “Late Payment of Commercial Debts (Interest) Act 2002”. This legislation firstly defines a date by which the invoice should be paid as 30 days from presentation of the invoice for services provided, or 30 days from delivery in the case of the supply of products. The small enterprise has the legal right to charge a single fee as some compensation for the Debt collection activity done and also to charge daily interest on the unpaid debt balance. The rate of interest is controlled by the date by which the debt becomes overdue, where debts that become overdue between January 1st and June 30th the rate is 8% over the Bank of England base rate as on December 31st of the previous year. For debts that become overdue between July 1st and December 31st, the rate is 8% over the base rate on June 30th. The single fee is fixed and is set by the value of the debt as follows:

For debts less than £1000, the charge is £40
£1000 to less than £10,000, the charge is £70
£10,000 and over, the charge is £100

This fee is permitted to be only be charged once for a specific debt, and it must be emphasised that both of the charges that can be applied from the legislation are optional. The legislation also says that if the contract between small enterprise and large enterprise does contain a late payments section then the legislation does not apply, provided that the section provides adequate recompense for the small enterprise.

Where a solid business relationship is in place and the small enterprise does not want to take the chance of missing out on future orders from the larger enterprise, they would be advised to contact the large enterprise first and try and be informed why the invoice has not been paid, only using the legislationif they do not get a satisfactory response. Before they do implement the charges they are best seeking advice, either paying for it by going to see a solicitor, or getting it for free from Business Link so that the small enterprise can have confidence in what to do next.

The next actions to make in case the invoice remains unsettled, even in part come down to three options in reality; a solicitor who specialises in Debt collection, an established Debt collection business and Debt collection software where by the small enterprise takes the Debt collection procedure in house. Whichever route is used there ought to be some chance of success in getting the invoice paid, via Debt collection letters, but the first two options come with fees that could be significant, whereas Debt collection software can start from under £100. The Debt collection software packages should be inspected to ensure they have the right facilities and content, such as marking of key activities, creation of useful reports and most important of all, easy ways of writing good Debt collection letters, which are at the core of the Debt collection procedure and also in retaining the professional and ethical standing of the small enterprise. The Debt collection software should provide examples or templates for the user to use to writetheir specific Debt collection letters and also there should be explanation of the legislation and how the Debt collection procedure works in practice.