Your Debt Collection Process…

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Cash might well be scarce in the coming months as the impact of the pandemic-related upheaval continues. Is your Debt Collection process up to the job of keeping you in the black?

  • Sales were non-existent for many businesses for an extended period, and it’ll take time for sales volumes to recover to pre-Covid levels. Cash availability has been drastically affected.
  • Many businesses may have taken out Bounce Back loans, CBILS loans or Recovery loans, but they’re rightfully wary of the future, and holding on to as much as they can.
  • A large percentage of the working population has been furloughed for months, swathes of large businesses have announced redundancies and the recruitment market is challenging, to say the least. Salary and wage costs are going to rise, as prices and inflation look set to do as well.

Even if cash isn’t tight for your business, it could be for some of your customers, who may well not have the level of awareness and focus that you do. Given that the FSB has announced that 62% of small businesses have been affected by late or frozen payments during the pandemic, it’s very likely!

You need to make sure that you get paid for your efforts, and getting a strong debt collection process in place is a great starting point!

Watch this first!

In this video we’re talking through what a strong debt collection process includes, and sharing lots of ideas and suggestions to get the cash you’ve earned into your bank account!

(Filmed during the first Lockdown, this content remains just as valid for any business facing cash flow pressures, an uncertain economic outlook, or who wants to improve their processes.)

We’ve already mentioned in a couple of earlier Rebound Resources that a strong debt collection process would be really important for the coming months.

The most important thing right now is to make sure that you get the cash to which you’re entitled into your business and so that you’re not subsidising somebody else’s business with your hard work.

Cash is going to be vital.

We’ve talked about this so many times, and it’s the thread that runs right the way through all of these Resources.

Cash may well be scarce and none of us know exactly what’s going to happen.

It would be wise to create as much of a ‘war chest’ as possible in case there’s a second spike, or you face a localised lockdown.

The most important thing is to make sure that you’re getting your cash into your bank account as early in the cash conversion cycle as possible, and certainly in line with your agreed terms.

Devise a Clear Debt Collection Process.

You need to have a clear process within your business that you can follow, or that you can trust that somebody else in the business is going to follow. This will make sure that you are getting cash into your bank, and educating your customers that that is your expectation.

If they can’t pay everyone, people are more likely to pay those that are actively chasing. You need to make sure that you’re in that category and don’t get left behind.

It’s important to make sure that your debt collection is happening because:

  • It will improve your cash flow
  • It’ll strengthen your position
  • It reduces risk

None of us know how our customers are going to manage their own cash as we come through the Pandemic, and we don’t know whether they’re going to be around long term.

We’re rumoured to be going into ‘the deepest recession for 300 years’. Now whether you believe that or not, the chances are that some businesses out there will be overextended and will fold.

Your job is to make sure is that they don’t fold owing you money.

What should be included in your debt chasing process?

We’d recommend the following steps as a starting point, but there will be additional steps that may be helpful depending on your business model:

  • Invoices are sent as quickly as possible.
  • A reminder is sent in advance of the due date. If payment terms are 30 days, this could be at 7 days before the due date. This allows the customer to query non-receipt, or if they disagree with any aspect of the payment amount.
  • One day after the due date, query non-payment. This could be by email or telephone call.
  • Follow at least daily until a response is received, and a payment promise made. Confirm any promise in writing. Keep the confirmation brief and factual.
  • Repeat the process if payment is not received as promised.
  • Reminders and chasers can become firmer as time elapses.
  • Additional action can be taken, depending on your preference. The options include: Suspend the account if funds are not received, to avoid adding to the amounts owed; withheld any further service until arrears are cleared; using any other leverage you might have. For example, if you hold the licence for a piece of software, as long as it is in your terms that you will do so for extended non-payment, you could turn off access to that software. Stage payments are useful here, as you can stop work until the payment is received, rather than having finished a job and then not get paid for any of it.

Follow, follow, follow.

If somebody owes you money, do not ignore it, you need to be on to them and making sure that someone in your business is on the case.

Develop some separation.

Use a separate person from within your business if that’s possible, to avoid any ‘mixed messaging’. It’s hard to collect debts effectively if your salesman has responsibility for collecting debts AND making sales.

Ideally you’ll have some separation between the two processes; it works better to have a different voice.

In our original business, I would be the one that chased for money because Chris would be the one who was having the positive meetings with clients. I was the ‘Bad Cop’!

Be firm and succinct!

When you’re chasing debtors, you can’t be afraid, you need to be quite definite and direct. You also need to keep your calls and your emails, in particular, polite but succinct. There is no need to avoid mentioning the fact that you are owed money or try to hide it behind small talk.

As long as you know that you’re chasing something that is a valid expense, a valid invoice and it’s in keeping with your terms and conditions, then you’re absolutely in the right to be chasing.

You may want to have a slightly softer voice at the moment because it is a tough time for businesses, but you should still be chasing.

Unless you are communicating, and asking the questions, you won’t know what a customer’s position is. You won’t know whether they’re trading, whether they’re struggling, want to pay you a small amount or are in some other situation entirely.

Flex when YOU want to.

You can flex your process and your guidelines if you want to, if you choose to, but you need to be fully informed before you do. If a debtor makes a proposal to settle over time, you can accept it, but you don’t have to.

Realistically, if you don’t accept, there is a risk to the relationship and to whether you will get paid at all, which you’ll need to consider. the main consideration is whether you want to keep a customer who not only doesn’t pay, but is a further drain on your resources because you’re spending additional time chasing for the payment that they agreed to make when they became a customer.

As I mentioned before, as long as your terms and conditions are clear and they have signed up to those terms and conditions, you are within your rights to enforce them. It is your decision though, it’s your business and you can make that call, so you can flex.

By making sure that you’ve got a clear process, you put yourself in control and you enable yourself to make that decision.

Would an App help?

We’d suggest using one of the Apps that we talked about in the earlier Resource where we talked about having an App Stack.

As you’ll see in that video, we recommend Chaser or Debtor Daddy to automate your Debt Collection process, or you can use the Xero or QuickBooks automated reminders. The latter are quite gentle, there’s no tailoring to them, they work as they work, and at the end of that time scale, they stop.

Chaser and, to some extent, Debtor Daddy, will enable you to tailor that chasing process but have your own templates per customer, per invoice, with different voices, so it can be much more tailored rather than very generic and very blunt.

Using Apps will take care of the ‘standard’ debtors. Those that are slow because they forget, they haven’t had the invoice, but who just need prompting. That can all be automated and you’re left with the debtors that need a firmer hand. Chaser also enables you to set a certain point beyond which the system escalates the chasing to a Director, or Manager, beyond your usual contact. This is really helpful and again, saves you from having to make that decision manually.

The difference this approach can make is huge!

We used an App in our last business and it very quickly transformed our cash flow.

Use a ‘Letter Before Action’ with longer standing debtors.

This is pretty much the last step before approaching a solicitor and can make a huge difference!

If you’ve been chasing, you’ve been calling, you’ve been emailing and you’ve got nowhere, a Letter Before Action is a letter from a solicitor that says to your customer that if we don’t receive payment, we will be taking further steps. There are firms of solicitors online who will charge around £10+VAT – £15+VAT.

So it’s really worth doing if you’ve got a significant bill. It can be worth investing a further £10, rather than you wasting more time without making any progress.

Written confirmations.

I mentioned before that one of the most important things about debt chasing is follow, follow, follow. You also need though to confirm every conversation, promise or response in writing in an email.

This is really important because if you do decide to take further action, you can produce all of those emails and you’ve got that audit trail of the history of the debt. You can also send that on to the debtor again, to remind them of the promise they made.

This confirmation can be very brief. It is purely confirming any verbal confirmation you may have had, even if it is just to come back to you in a couple of days.

It can be surprisingly effective to put a customer’s promises in back and white for them…

Terms and Conditions

Every customer should sign up to your terms and conditions before you start to do business with them. Ideally you would have a copy of the signed Terms on file, to produce to the customer should you need to remind them of the terms they agreed later. You might also need to produce them to the court if you need to take further action.

We have had to fall back on our Terms in court a couple of times over the years, and know several clients who’ve done the same. Having reliable Terms means the process is far less stressful and increases your chances of success.

It’s really worthwhile therefore to have those terms and conditions reviewed by a solicitor.

There is going to be a cost for the review, but you will know that you can fall back on those terms and conditions should you need to later on.

Make paying you as easy as possible

You’re much more likely to get paid on time by good payers if you make it easy.

  1. Send invoices promptly.
  2. Include ‘how to pay’ information on your invoices.
  3. State your payment terms and due date on your invoice.
  4. State your bank details on your invoice.
  5. Link to Stripe or a similar payment service so they can pay online when they’re ready to do so.
  6. Make sure your reminders include all of the above and a link to the invoice in case it has been mislaid or lost.

Late Payment Interest

Under the Late Payment of Commercial Debts Act, you’re entitled to charge interest for late payments. It’s not a huge amount, but has the benefit of showing customers that you know where you stand. This will encourage your customers to pay you.

How we can help:

  • If you’ve got somebody within the business who is responsible for chasing your debtors, but who is lacking confidence, we’re happy to help them. In the past we’ve given weekly support to some clients to help their internal resource gain confidence.
  • We can review your existing debt collection process and suggest ways it may be improved.
  • We can help you set up Chaser or Debtor Daddy within the business and integrate that with your Xero or Quickbooks system.

If you think you would benefit from a discussion about your debt collection process, please do get in touch. This is really important to get right not only for the coming few months, but also for the longer future of your business.

You can also download a copy of Chaser’s ‘Ultimate Guide to Credit Control‘ here which gives a range of different suggestions and advice.

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