Skip to content

Advice for Small Businesses on Recovering Debts

If you own a small to medium business, then you’re sure to know that invoicing early and chasing payments effectively can ensure a healthy cash flow.  In cases where an invoice is not settled on time, an email reminder will usually sort out the problem quickly.  However, sometimes a polite reminder from you is not enough to do the trick and elicit payment.  Deciding what to do next may have you flummoxed – you have a tough decision to make.  You know that a healthy cash flow is essential for the long term benefit of your business – after all, nearly a quarter of small businesses fail due to cash flow problems.  Let’s take a look at some of the options available to you that may help avoid resorting to taking your customer or client to court in a bid to get paid.

One way forward is to start legal proceedings yourself via HMCS Money Claim Online – it’s a cheap and straightforward process though you can engage the services of a solicitor to do this for you if you prefer.  We’ve already covered the subject of using the Small Claims Court to recover monies owed to you so you can find the information you need to get you started right here.

A good solicitor will be able to give you basic advice on the phone.  However, make sure you ask for the costings up front as in some cases, the fees involved will be more than the amount you’re trying to reclaim.  In many cases, all it takes is a letter from a solicitor to make the customer pay up – the threat of legal action combined with the statutory late payment charge and interest usually resolves the problem pretty quickly.   If a solicitor’s letter fails, then there are two options open to you and which you choose depends on whether the customer disputes the debt or the amount owed.

If the debt is more than £750 you can begin insolvency proceedings – this means that the debtor can be made bankrupt or, if it’s a business that owes the money, the business can be wound up and their assets will be sold in order to service the debt.  Other parties may also be owed money by the business and, if this is the case, they will also be eligible for a share of the proceeds.  If the sale of the assets does not cover the debt, then you’re only going to get part of what’s owed to you so you need to take this and your legal fees into account when deciding whether or not to proceed.  In many cases, the threat of insolvency results in the business paying the debt to avoid insolvency proceedings.

Another option is to engage the services of a debt collecting agency to recover the amount due.  Again, there’s no guarantee that the debt will be paid in full, so you need to consider the amount due and the collection agency fees that will be incurred.  Some commercial debt collection providers operate on a no-win, no-fee basis which enables you to go ahead with an attempt to recover your monies without actually risking any more of your capital when doing so.