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How can you protect your business from debt collection?
In order to maintain commercial and financial stability, companies rely on a steady cash flow from their customers. Receiving prompt payments in full is important, which without can impact the overall security of the business. As a business owner, you may want to consider protecting the company from the potential for bad debts from the onset to ensure that outstanding payments do not have to be written off.
This guide will explore the different ways to protect a business from bad debt and the importance of instructing experienced debt collection lawyers.
Click on the links below to jump to that section:
The different reasons why debtors may refuse to pay.
Different ways to protect a business from unpaid invoices.
Find out the different ways to protect a business from future bad debts.
Browse through when a business may require a debt collection lawyer.
Find out who Giambrone & Partners are, and what debt collection services we provide.
Read the most common queries on business debt recovery in the UK.
What comprises a bad debt?
Bad debt refers to an unpaid invoice that has exceeded the payment terms and ignored letters requesting payment. Such unpaid debts have an impact on the business.
To prevent bad debts becoming unrecoverable, they should be pursued immediately and robustly.
Find out more about the limitation periods for recovering outstanding debts with our expert guide here.
There are, of course, many different reasons a debtor may unable to pay, including bankruptcy, financial difficulties or negligence. Also, the debtor may have a valid complaint regarding the goods or services. In these cases, this should be investigated as soon as possible. If there is any merit in the complaint, a compromise should be sought.
If the debt collection procedure has been unsuccessful and results in a bad debt, then either the debt written off by the business. The matching principal can be applied where an expense is such as bad debt is reported in the same period as the sales.
If your business is experiencing bad debts, it can have both short-term and long-term implications. Without receiving income, there will be an inevitable struggle to pay suppliers and payroll obligations. In addition, a history of bad debts can impact on the company’s reputation.
How can you protect your business from unpaid debts?
Regardless of the invoice and payment procedure in place, bad debts may arise. If this happens, ensure that legal advice is sought to avoid a long drawn-out series of attempts to recover your debt.
Invoice and pursuing overdue payments
When payments become overdue, a structured approach to pursuing outstanding debt is crucial. This may involve a series of reminders, that communicate to your clients the importance of settling their accounts promptly and the consequences of not doing so.
Maintaining an understanding of your client’s financial health
Consider conducting company searches at Companies House on potential and existing clients. This enables you to obtain information about a company's financial health, including its creditworthiness and any history of late payments.
Searching the insolvency register
Searching the insolvency register is another step that can provide invaluable insights into the financial stability of companies you are dealing with or considering as clients. This register contains details of companies and individuals involved in insolvency proceedings.
Instructing a solicitor to send a letter before action
If an invoice remains unpaid, the first step towards legal action is instructing a lawyer to send a letter before action (LBA). This is a formal notice indicating that legal proceedings will be initiated if the debt is not settled within the specified timeframe. Often, receiving a letter from a lawyer can prompt a debtor to pay, avoiding the need for further legal action.
However, if this does not encourage payment, debt collection lawyers can guide you and your business through the next step in recovering the debt.
For more information on the debt recovery procedure, contact Giambrone & Partners' expert lawyers to receive a callback.
Protecting your business from future bad debts
This should begin with embedding clear payment terms and conditions within the terms of the contract. Clear instructions create a mutual understanding between the parties and showcases your intent to initiate legal proceedings should the payment terms be breached.
Streamlining the payment process is equally important; the easier it is for clients to settle invoices the more likely they are to do so promptly. Simplifying this process may involve offering an easy payment method, such as online platforms that facilitate quick transactions, or providing clear instructions for payment at the point of invoice.
Credit scoring for future business relationships will further protect your business from potential bad debts. Assessing the creditworthiness of clients and other businesses before engaging can gauge the potential risk of delayed payments.
When may the services of debt collections lawyers be required?
The challenges of managing unpaid debts require a blend of preventive and reactive strategies; especially when dealing with cross-border debts, or large sums.
How can Giambrone & Partners help?
Giambrone & Partners provides a comprehensive list of debt collection services for both individuals and commercial organisations. Managing debt and debt recovery is essential for business maintenance and growth.
With a successful track record and a high recovery rate, our expert debt collection lawyers are on hand to answer any queries and advise your business on the debt collection process.
Contact Giambrone & Partners' debt collection team today for more information.
Frequently asked questions
Is it always worth pursuing an outstanding debt?
Depending on the value of the debt it may be that the expense and time involved in the collection of small debts may exceed the value of the debt. Also, it is important to be aware of the debtor's ability to pay; pursuing a debt from a company or individual in financial distress might prove futile. Additionally, consider the impact on a long-term business relationship, as it may be more advantageous to negotiate a settlement or write off the debt.
If you are unsure, seek legal advice from experienced debt collection lawyers. They will be able to estimate the legal costs against the debt's amount to find the best outcome available.
Find out about what happens if a debtor ignores requests for payment with our expert guide here.