Managing Debt Recovery: Essential strategies

Author: Markel UK

Prevention is always better than cure when it comes to bad debt, so let’s start with some tips for making it less likely

• Credit checks: Where possible, running credit checks on customers can flag up possible problems, alerting you to poor credit before you work with them and sometimes even giving you heads up about sudden credit changes when you’re already in a contract.
• Get it in writing: a properly written, bespoke contract for the work carried out can be worth its weight in gold. While legal fees are, by their nature, an extra business cost, putting a watertight contract in place can save a lot of hassle further down the line.
• Know your customer: it might seem basic, but establishing a strong relationship with your clients can mean the difference between prompt payment and debt that goes bad. In practice, this means face-to-face meetings and regular check-ins, both when you’re engaged in a project and – just as important – in between jobs. Getting that contact and rapport going will stand you in good stead when it comes time to pay.
• Go digital: an up-to-date customer relationship management and accounts system can greatly improve your understanding of debt and cash flow in your business. Just as payroll and supplier payments can be sped up and automated, so too can spotting and chasing late payments. Digital accounting software can act as an early warning system for your business, helping you chase debts before they go bad.
• Sector-specific insurance: Get the right support and back-up in place with specialist insurance that understands your industry needs and gives you access to a debt recovery service.
• Learn the power of ‘No’: it’s never easy to turn down work, but there are times when a judicious refusal to work with certain clients can help avoid bad debt problems. Apply common sense to red flags: does the customer have a bad record for payment? Are you unsure they’re going to stay in business long enough to pay you? Are other suppliers reluctant to work with them.

Of course, despite your best efforts, there will still be times when you find yourself in the position of having to manage bad debt. So where to start

Tackle any outstanding issues first

First and foremost, try to resolve any customer complaints before pursuing something as bad debt. If you don’t do this, you might well find that if you pursue an unpaid bill in court, your customer will defend themselves and argue that they shouldn’t have to pay either partially or fully. There could also be a counterclaim coming your way – that is, your customer effectively suing you back, for example for losses they say they’ve suffered, whether that’s damage to their property or the additional costs of getting the job completed by someone else. Such claims will often be for a larger sum than the unpaid fees, and will absorb further time (and possibly costs) in responding to those allegations.

For this reason, you should always consider negotiating, listening and talking to someone you’re in a dispute with. Only once you feel that all outstanding issues have been resolved should you consider pursuing court action for a bad debt. If that becomes necessary, claims for under £10,000 are generally handled under the County Court’s Small Claims Track, which is designed for simpler, lower-cost dispute resolution.

Debt recovery resources and support

Having the right tools and resources in place will help you through the process of pursuing a bad debt. Markel’s Business Hub members have access to an array of free expert support, advice and documentation to help with debt recovery for businesses. These include:

• Late payment calculator: this calculates the interest and compensation owed to you under late payment legislation, so you can add the right amount on to outstanding invoices.
• Debt recovery guides and documents: if you’re unsure where to start with debt recovery, these step-by-step guides take you through the entire debt recovery process, from issuing reminders to legal action.
• Letter Before Action (LBA) templates: whether you’re an SME or sole trader, make use of these compliant templates to make sure you meet Pre-Action Protocol (PAP) requirements – crucial for your prospects of recovering court fees if you decide to take legal action.

Depending on your situation, we offer Business Hub members either free or pay-as-you-go telephone advice through our Business and Legal Helpline. Whether you need advice on how to issue a formal demand or you need help with understanding the risks of a counterclaim, our experienced advisors are on hand to guide you through each stage of debt recovery.

For more complex situations, or where members require additional support, the Business Hub also offers access to paid-for services carried out by specialist solicitors at Markel Law LLP, such as:

• Specialist template letters beyond standard LBAs
• Additional document packs tailored for specific sectors or more complex disputes
• Upgraded advice and assistance for pursuing larger claims through the court process

Accessing these services is simple – just head over to our Business Hub and log in with your membership credentials. For telephone advice, simply call your dedicated Business & Legal Helpline number or use the Book a Call facility available on Business Hub.