In this week’s blog we’re taking a deep dive into debt recovery - what it is, what the alternatives are, and how to utilise it for your business.
Before we get to the meat of the sandwich, let’s start at the beginning with a definition of the term:
Debt recovery is the process of pursuing payments of debts owed by individuals or businesses. An organisation that specialises in debt recovery is known as a collection agency or debt collector.
As a business owner it’s hard to top the frustration of providing goods or services for a customer only to be met by radio silence or excuses when it comes time to collect payment.
This situation is not uncommon and has become a huge problem for UK businesses. Recent research from the accountancy software platform Xero shows that “over half of the invoices issued by Xero’s small business subscribers are paid late.”
This very real pain point coupled with low barriers to entry has led to a burgeoning debt recovery industry.
Indeed, if you find that your cash flow is being significantly impacted by overdue invoices, you might consider calling in a bomber jacket wearing superhero to collect your outstanding debts.
A debt collection agency will collect in your debt for a fee. This is typically a percentage of the total debt and usually ranges from between 10% and 30% (depending on the size of the debt).
If things have deteriorated to the point where you feel you have no alternative, sacrificing a hefty chunk of the invoice for the guarantee of some return might seem like a good idea.
However, there are drawbacks…
In most instances traditional debt collection is the nuclear option.
If you’ve reached the point where you’re calling a debt collector, chances are you and the customer will not be working together again.
Depending on the agency you use and their approach, calling in debt collectors may also have a negative impact on the reputation of your business.
As we’ve already touched on earlier in the article, the main disadvantage of using a debt collection agency is the size of the fees they charge. These typically range from somewhere between 10% and 30% (depending on the size of the debt).
With all that in mind, the dream of a debt collecting hero fighting the good fight might start to look more like a nightmare.
So if you don’t want to write off the debt and calling in the debt collectors seems a bit extreme, what else can you do?
One alternative to debt collection is mediation. Mediation is a structured and interactive process where an impartial third party assists disputing parties in resolving conflict through the use of negotiation techniques.
While this can seem like an amicable solution, if the customer hasn’t communicated much to the point that you’re considering this option, they may well refuse an invitation to a mediation session.
If you’re not already communicating with the most senior individual within the organisation, it might be a good idea to send a letter or email directly to the Managing Director or Owner of the business to see if that resolves the matter.
Finally, you can try itsettled. Although if you care about customer relationships, you should try this first.
Designed specifically to recover payment from good payers, bad payers and non-payers, the legally compliant process has collected over £420 million for UK businesses.
As well as collecting the money you’re owed and improving cash flow, the consistent, reasonable and firm (when it needs to be) communication is specifically designed to help you maintain relationships with your customers.
The intuitive software does all the thinking for you, meaning you don’t have to be a credit control expert to use it. You can have your account set up in less than 60 seconds and complete your credit management tasks in less than 15 minutes a day.
Interested? Sign up today for a free 7 day trial.
Want to know how to read a credit report on your customers? You're in the right place.
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