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Dealing with Debtors – Top Tips for SMEs

When it comes to running a small to medium enterprise (SME) here in the UK one of the biggest challenges you face is maintaining a steady cash flow, it’s a vital issue and the lifeblood of your business.  While you may think that sales are the most important requirement to run a successful business, the sales don’t amount to much if your customers don’t pay you on time – or, worse still, don’t pay you at all.  Most of us who operate a small business accept that late payments is just something that we need to put up with, this is not the case.  Late payments can do some serious damage to your business, stopping you from growing your business and, in some cases, causing the business to fail completely and close down.

If you want to avoid cash flow problems in your business as a result of late payments, then you need to make sure you do everything that you can to ensure that invoices are paid in a timely manner.  If you deal with invoice settlement in-house then you need to come up with a clear plan for collecting your cash and stick to it. 

There seem to be two major reasons given for invoices not being paid on time:

1.     The debtor doesn’t have the money

2.     The debtor doesn’t want to pay or has prioritised another creditor over you.

Recovering a business debt of this type needn’t be too much of a challenge if you use the following tips:

·        Instead of relying on a letter on an email, try a friendly phone call - it’s a much better way of getting a response as it’s direct and personal.

·        If that approach doesn’t work then it’s time to try the letter before action (LBA) with a clear statement letting your debtor know exactly what you expect from them.  This should include details of any outstanding invoices with a formal warning that if payment is not received by a particular date (usually within 7 days) that court proceedings will be the next step. 

·        A threat of court action from a professional debt recovery agency is often an effective method of recovering the debt.  If you feel that this is the best approach for your business, then look for a debt collection agency that operates on a no-win, no-fee basis.

·        There are times when the debtor just doesn’t have the money to pay so it’s worth asking them if they would prefer to settle the debt in instalments.  Offering this option is a great solution which will also often result in retaining the customer, rather than losing business in the future.

Dealing with non-payment of invoices in a sensitive and timely manner makes good business sense.  Whether the debt is owed by an individual or by another business, customer retention is another important issue when it comes to running a business and dealing with your debtors in a timely manner is an essential part of running a business.  Try to think about how you would like to be dealt with if you were in the debtor’s position so that you can show the human face of your business – it really does make good business sense.