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The Rising Cost to SMEs of Collecting Debts

According to the latest research conducted by BACS (Bankers’ Automated Clearing Services, the company which runs Direct Debit here in the UK), Britain’s smallest businesses experienced a massive increase (more than 150%) in recovering past due invoices in 2018.  It’s estimated that the average annual cost to a small company in obtaining money owed is £9,000 and more than a third of small businesses are left waiting for payment for two months beyond the due date. 

This is bad news for small business as it has a negative effect on cash flow and 34% of SMEs rely on overdrafts, with a quarter (25%) then paying their own suppliers late and 30% cutting the cost of salaries.  This results in many small businesses here in Britain unable to invest in their business, with some ceasing to operate and going out of business completely. 

Whilst the BACS Direct Debit and Credit facilities represent a powerful tool for small businesses in their quest to get paid in full and on time, the Late Payment of Commercial Debts Act is also designed to reduce the costs of collecting funds owed for businesses large and small.  As we’ve pointed out in the past, this Act allows the addition of collection costs to be added to the sum owed, together with any interest charges accrued.  In more than half of cases where small business owners turn to a professional collection agency, debtors pay both the collection costs and interest.

When it comes to determining how long to wait before calling in the professionals to recover monies owed to your business, effective collection success is more likely on debts that have been owing for less than 90 days past the invoice due date. 

Many smaller business owners may be reluctant to use the services of a professional debt collection agency, often thinking that this is an expensive way of recovering the funds owed to their business.  However, engaging the services of a collection agency that operates on a contingency basis is a no-risk method of attempting to recover a debt.   This is because the business owner will only have to pay the agency fees if the money is successfully recovered.  This is also known as a “no-win, no-fee” service and is designed to ensure that business owners are not risking more money by attempting to recover the debt. 

The added benefit of taking advantage of a professional debt collection agency that operates on a contingency basis is that the company is obviously confident enough to offer its services in this way.  Only professionals with the experience and expertise necessary to reach a successful outcome for you and your business will have this level of certainty, so you can rest assured that you are hiring a provider that has the best chance of recovering the money owed to your company.