How to Handle Debt Recovery as a Small Business
Posted on: 1 November 2017
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When a client doesn't pay up on time, it's bad news for your small business. However, knowing how to go about debt recovery can be tricky, particularly if you've never dealt with the issue before.
Whether a debtor doesn't have enough money to pay you, doesn't think they should have to pay, or has simply forgotten about your invoice, you need to know how to get what you're owed.
Follow the steps below for stress-free debt recovery.
Call and Ask the Client to Pay
If you've sent your invoice multiple times and the client hasn't paid, it's time to pick up the phone. This ensures an immediate response and makes the situation more personal, increasing the chance that you'll be paid. Have a copy of the original invoice ready to re-send in case the client claims they didn't receive it.
Send a Formal Demand Letter
Tried asking nicely and got nothing? It's time to send a formal demand letter. You should include details of the original invoice and the work you carried out, along with a timeline of when you expect to be paid, and the action you'll take if you don't receive the stated amount.
You could threaten action via a third party debt collection agency - this usually prompts a faster response. If your original invoice stated that interest would accumulate on unpaid fees, be sure to include this in the letter.
Arrange a Payment Solution
In many cases, debtors aren't paying because they simply don't have the money. If you want to avoid the hassle of going to court, you could try to work out a creative payment solution.
For example, you could accept payment in instalments, or ask for half to be paid immediately, with the rest due at a later date. This is often the most beneficial solution to both you and the person who owes you money.
Take the Issue to Court
If you've tried everything and aren't any closer to a solution, it's time to take the issue to court. In most cases, you'll want to take the issue to small claims court.
Before taking legal action, you should fully consider the costs you'll incur - in some cases, the money you recover may not be enough to cover the cost of legal action. Seeking advice from a solicitor or debt collection agency is a smart move.
Got a client that won't pay you? Follow the advice above for effective debt recovery.