Regardless of the size or age of a business, there will always be times when a customer chooses not to pay.
When this happens, it can put a lot of pressure on the business, as well as subject the business owner to a lot of stress and frustration. Being in debt is always a difficult situation to deal with, and knowing what to do to fix the problem quickly is important.
Recent studies have shown that up to 70% of businesses owe money, a number that has steadily increased since the start of the Covid-19 pandemic.
There are many reasons why a business can be trusted with money. A common cause is when a company has provided goods or services that have not been paid for. A customer may have disputed an invoice and run away after receiving their merchandise, leaving the supplier out of pocket.
A small business, individual trader, or self-employed person may be owed money from a much larger organization they worked for. In this situation, they may not want to confront the debtor as they fear that it will deteriorate the relationship with a potential long-term business partner.
Whatever the cause of the debt, it is important to take action to fix the problem as quickly as possible. In the case of a business, it is also important to deal with the problem in a professional and friendly manner. If a business relationship is compromised, a business cannot benefit from the profits that will come from future endeavors with that particular client.
If you are a business owner who is owed money, you may also want to consider the cost of collection. As with any service-based solution, there are several options available, and knowing which one to choose is a very important decision.
Ways to recover money owed to a business
There are different ways a business can get back the money it is rightfully owed. If you or your business has provided goods or services to a customer who has not paid, you will likely consider one of the following options.
Educate a professional debt collection agency
One of the increasingly popular ways to collect a debt is to hire a professional Recovering agency. An agency like this will be able to collect money owed to a business quickly and efficiently while incurring a low cost.
Many agencies specialize in particular types of debt or in specific industries. For example, Federal Management is widely regarded as the UK leader in recovery of trade receivables. As they are the only UK based agency regulated by the Financial Conduct Authority (FCA), their unique and professional approach resolves issues in an efficient and friendly manner for all parties.
Small businesses or the self-employed may choose to use specific industry specialists, such as Frontline Collections, which is the UK leader debt collection agency.
Using a collection agency is an effective option, but the cost of doing so should be factored into your decision-making process. While this is significantly more cost effective than other options, an agency will charge for its services, and this should be taken into account.
Action in Small Claims Court
Another common method used by business owners to recover money owed to them is to take legal action against a debtor.
Often, companies will send “last notice” letters in advance indicating their intention to take this action. In some cases, this is enough to induce a debtor to pay what he owes.
While this can be an effective method in some cases, it comes at a significant cost to the company undertaking this business. Legal fees can increase rapidly over time, and legal proceedings can often take months or even years to complete. It will take a long time for the company to gather all the necessary documentation related to the case, and there is no guarantee of outcome.
If the deal is lost, then the debt will be canceled, with the result that the business owed money is now even out of pocket. On top of that, it is possible that a business relationship could be strained.
Legal action can be effective in many cases, however, the cost must be considered before committing time and resources.
Mediation and arbitration
Negotiation can be a very effective way for businesses to resolve debt issues without having to hire a third party.
In some cases, resolving the case out of court can be more productive than going the legal route and can serve to strengthen business relationships in some circumstances. For small businesses, freelancers, freelance traders and freelancers, this could be a good way to save money, but it costs time. A decision must be made whether or not it is financially viable to postpone ongoing projects to recover the losses of another.
Unfortunately, there will always be individuals who will do or say anything to avoid paying what they owe, and in cases like these, it is best to involve a third party as soon as possible. Being able to spot the warning signs of a customer not going to pay is a useful skill for any business owner and can save time and money in the long run.
Interesting related article: “Good Debt Vs Bad Debt – What’s the Difference?” “