Here’s what businesses can do to make sure they are not at the bottom of a debtor’s list
In business it is extremely unlikely that someone who owes you money will only owe money to you. A more likely situation is that they will have a number of other creditors who need to be paid but only enough money to pay some of them or only part of the debt. This means that your creditors are going to have to decide who is a priority so the onus is on you to get to the top of that list.
As a general rule of thumb, you will be viewed as a priority if you are pro-active in chasing your debts. A creditor who is known to be keen on chasing payment is likely to be uppermost in the minds of their debtors. I am not suggesting that you should hound your debtors; simply make sure that they know you are on the case and aren’t going to sit back and wait – especially if payment terms are breached.
The next thing that you can do is to make sure that you have all the information that you need in order to effectively chase a debt. This means knowing who to contact and having their correct details. If you are chasing the finance director for payment, then always go to him or her; not those lower down the ranks. Gatekeepers can be a nightmare. Always be polite but always be relentless. Let them know that you’re serious and don’t be fobbed off.
One top tip is to not chase via email as they can be easily ignored. Confirmations of delivery or a read receipt are all well and good, but a telephone call is much harder to ignore. You can also put a debtor on the spot about when you can expect payment and how much of the debt is going to be paid. If a promise of payment is forthcoming but doesn’t appear then this should be chased up immediately. Remember, it’s your responsibility.
If you have a debtor who is a bad payer, then you really need to keep a very close eye on the amount of credit which they are receiving, and you may need to consider reducing their limit. This could seem counter-productive because if they are not buying from you then you are not making any money but if they are buying from you and not making payment, or exceeding their terms of credit, then that has a very obvious and often swift effect on your bottom line. Sometimes terms and conditions allow a creditor to reduce terms of credit where the debtor does not pay. If your terms and conditions do not contain such a provision, then review them to see what changes can be made.
Simple debt chasing and management can be dealt with in-house and probably for little cost. However, sometimes you will need to consider outsourcing the solution and that means getting someone else to pursue the debt for you. When solicitors are instructed to chase debts, there is a very high percentage of recovery following the issuing of pre-action letter. This is because debtors usually know that if a solicitor is involved then legal proceedings won’t be too far behind. If that happens, they will also incur interest on the debt and will have to pay court fees and fixed costs. These are in addition to paying the debt itself.
Finally, a debtor is always much more likely to pay a creditor who they need to work with in order to continue their operations. If you provide a specialist product or service then you should be very choosy about who you deal with and what, if any, credit terms you agree.
Managing monies owed to you is all about following a few simple steps: have the crucial information and good procedures in place; be committed to following those procedures; and use all of your resources to make sure that the debtor makes you the creditor that they need to pay as a priority.
