June 2009 - Recession may mean businesses become tougher on debtors

Success is often measured by the size of an organisation or its reputation within the business community, however, one of the hallmarks of any profitable business is a positive cash flow, which requires prompt collection of debts.

40% of small to medium-sized businesses claim that late payments have become more frequent during the recession, with businesses having to look carefully at their debts and debt-recovery procedures.

Many businesses are facing insolvency, and debts that may have been considered doubtful are now irretrievably bad. In order to prevent this, businesses should ensure that their internal debt collection resources are focussed on reducing all significant debts quickly so that the impact of a bad debt is minimised.

These businesses must also be prepared to make tough decisions in terms of whether a client relationship is worth saving when a large amount of outstanding debt is at stake. In the event that a business’s internal credit control procedures have been exhausted and its patience has worn thin, one could consider Court or insolvency proceedings as a means of recovering debts owed however this will undoubtedly damage the existing relationship the business has with the client.

Writing formally to the debtor threatening proceedings if payment is not received within 14 days can be a quick and inexpensive way of securing the money whilst simultaneously avoiding further action. If this does not achieve the desired result, the company may then consider  commencing either Court proceedings or, if the debt is at least £750 and is not disputed, then insolvency proceedings.

For insolvency proceedings against an individual a business would first need to serve a statutory demand. This allows the debtor 21 days to pay, failing which the business would then be able to commence bankruptcy proceedings.
Sometimes, the threat of this action alone is enough to generate payment. Often, it may be better to accept a percentage of the debt owned if it means getting paid immediately rather than the complete sum over a longer period of time.

Taking a harder line of action with slow paying customers may be difficult for businesses that are used to developing customer relations. However, if a client is in financial difficulty there will undoubtedly be other creditors already forming a queue to be paid, thus a softer approach is likely to make a debt seem less of a priority.

If you would like to discuss cashflow, debtors or your business with us please call us on 01562 514862, email This e-mail address is being protected from spambots. You need JavaScript enabled to view it or contact us using the contacts page of our website.