The recession has generated much tightening of purse strings not least by the finance houses when it comes to granting support to small companies in the UK and with the national debt now over £122bn, it could seem ludicrous that finance houses have made big profits and can continue their extravagant bonus handouts, but are reticent to lend to small companies.
When a small firm has done projects or provided equipment to a larger firm and the larger firm has left the account unpaid after the agreed last payment date, this could have a significant affect on the cash flow of the small firm, since they will have to pay a weekly salary bill maybe and their own bills for materials or sub-contract labour used will need to be paid. It could be unwise to pay out for legal practices or Debt Collection firm when they could not be aware of the financial status of the larger firm. It could be assumed that the small firm would get in touch with the larger firm and try and understand what has occurred, most importantly if the small firm has done projects or provided equipment on many past occasions and had no difficulties with unpaid bills. This rather sudden occurrence could point to difficulties with the finances of the larger firm, which could mean that the small firm might not be certain to receive all of their payment if the larger firm went into administration. This is somewhat a worst case scenario and it might be hoped that the small firm might get a more positive answer to their enquiry, either a simple problem has been found and will be fixed, or they are actually short of money and would part payments do?
If the larger business’s answer seems like delaying tactics then the small firm could feel justified in starting Debt Collection actions, but if the small firm is indeed facing cash flow problems then legal practices or Debt Collection firm could be ruled out, since they could levy a fee to take on a case, and unless they can be certain of success, the small firm could be left to pay costs if it goes to court. In this instance the small firm can do no worse that evaluate Debt collection software as a procedure for handling the Debt Collection process with their own resources. Debt collection software systems can start under £100, which could be easily affordable and so worth a try. The small firm will have to cater for internal costs such as employees time spent operating the Debt collection software, which will take time out from their normal activities, since a new member of staff could well be out of the question. They will also need to have a suitable PC on which to install the Debt collection software and a good quality printer to print off Debt collection letters. Debt collection letters form the heart of the Debt Collection process so the small firm needs help from both sides; the Debt collection software should provide documentation which explains the Debt Collection process and also goes into detail about composing convincing Debt collection letters, the employees will need to have a good command of English since the large firm will get the Debt collection letters and could judge the small firm on their content, so to be sure it would be best of each letter is proof read before it is sent.
It would be hoped that with these issues addressed adequately, the small firm can write and send good quality Debt collection letters that will show the larger firm that they are serious and they should get the debt paid.
They say that prevention is better than cure, so in this context it would be better if the small organisation and large organisation have agreed a late payment section in their contracts, so that both parties know about the risks of delaying payments beyond the final date for payment. But if such a section is not written into the contract then at least for the small organisation, help is available in the form of the “Late Payment of Commercial Debts (Interest) Act 2002”. This legislation firstly sets out a date by which the bill should be paid as 30 days from presentation of the bill for services provided, or 30 days from delivery in the case of the supply of goods. The small organisation has the option to demand a single fee as some recompense for the Debt collection activity undertaken and also to charge daily interest on the unpaid debt balance. The rate of interest is controlled by the date by which the debt becomes overdue, where debts that become overdue between January 1st and June 30th the rate is 8% over the Bank of England base rate as on December 31st of the previous year. For debts that become overdue between July 1st and December 31st, the rate is 8% over the base rate on June 30th. The single fee is fixed and is decided by the value of the debt as follows:
For debts less than £1000, the charge is £40
£1000 to less than £10,000, the charge is £70
£10,000 and over, the charge is £100
This fee may be only be charged once for a given debt, and it must be made clear that both of the charges that can be claimed from the legislation are not mandatory. The legislation also says that if the contract between small organisation and large organisation does contain a late payments section then the legislation does not apply, provided that the section provides adequate recompense for the small organisation.
Where a solid working relationship exists and the small organisation does not want to take the risk of losing future work from the larger organisation, they would be advised to get in touch with the large organisation first and try and be informed why the bill is still unpaid, only using the legislationif they do not get a satisfactory response. Before they do apply the charges they are best seeking advice, either paying for it by going to see a solicitor, or getting it for free from Business Link so that the small organisation can have confidence in what to do next.
The next steps to take in case the bill remains unpaid, even in part come down to three options in reality; a solicitor who specialises in Debt collection, an established Debt collection company and Debt collection software where by the small organisation takes the Debt collection operation in house. Whichever route is taken there may well be some degree of success in getting the bill paid, via Debt collection letters, but the first two options come with charges that might be significant, whereas Debt collection software can cost under £100. The Debt collection software packages must be inspected to ensure they have the right modules and content, such as recording of key activities, generation of meaningful reports and most important of all, easy ways of creating good Debt collection letters, which are at the heart of the Debt collection operation and also in keeping the professional and ethical standing of the small organisation. The Debt collection software should provide examples or templates for the user to use to writetheir specific Debt collection letters and also there should be explanation of the legislation and how the Debt collection operation works in practice.
When a small firm has submitted their invoice for the latest work they have done for the large firm it could come as a surprise to realise that at the last payment date it has not been paid. This will be especially worrying if the large firm has been a long term client of the small firm and has not missed a payment until now. In this context the small firm could wish to tread the path of Debt collection carefully because they could well wish to keep on good terms with the large firm in order to retain future business from them. The first action of the small firm needs to be to communicate with the large firm and be informed why the invoice has been late for so long and only if this does not prove successful should the small firm take it further.
In the current financial climate
the small firm could not have the cash at hand to fund legal practices or Debt collection businesses to do the Debt collection on their behalf and so rather than sending out Debt collection letters, the small firm could consider alternative dispute resolution (ADR).
Examples of ADR procedures are mediation or conciliation, where a third party works with both parties to reach concensus, or arbitration where a third party decides what needs to happen based on evidence presented to them about the case. Both mediation and conciliation ought to provide a means for the small firm to stay on good terms with the large firm and so preserve the hard won working relationship. It could be that arbitration presents the large firm with a decision it does not like and decide to fight it, thus damaging the working relationship between themselves and the small firm.
If these ADR pprocedures fail to get the large firm to pay the invoice, even in part, the small firm could realise that Debt collection proper is its only direction. Assuming that they do not wish to take up a potentially costly direction of legal practices or Debt collection businesses, one way of proceeding with Debt collection is the use of Debt collection software. Debt collection software systems can start from under £100 and when compared to a charge of 8% to 10% of the debt from legal practices or Debt collection businesses, therefore debts over £800 to £1000 would look to be worth taking on from Debt collection software. The small firm needs to evaluate several Debt collection software systems since they will have to also commit to training personnel to operate the chosen systems and the small firm should be happy with what Debt collection software system they are buying so that the members of staff training is not wasted by having to change to another Debt collection software system.
The Debt collection software needs to focus on the writing of Debt collection letters because these form the heart and so they must be created in good English and with appropriate usage of current legislation and also any clauses in the contract that needs to exist for services provided by the small firm. The quality of the Debt collection letters will reflect on how the large firm sees the small firm so it could be wise to have any Debt collection letters proof read before they are sent out, especially by the head of the small firm so that this person knows what is being created.
By using the Debt collection software system correctly and composing professional, unemotional and ethical Debt collection letters the small firm needs to be hopeful that the large firm will pay the invoice. Also if the small firm comes up against future late payments, they will have the internal experience and tools to handle the Debt collection operation, with no further expenditure being required.
It can be difficult to know what to do when a large organisation is late in paying the latest bill for projects done or products supplied by a small organisation. The small organisation might have done projects for the large organisation many times and expects to be paid on time as before, but this might be a difficult time for the large organisation, especially if they are also waiting for outstanding invoices from even larger firms.
Rather than resorting to Debt collection strategies at once, the small organisation might well hope to bear in mind the relationship they have culturedwith the large organisation, as jumping in too soon with threatening Debt collection letters could so easily ruin that carefully cultured relationship.
The first thing the small organisation should do is get in touch with the large organisation and let them know that the settlement is late and see if they can do something about it. If this fails to produce a settlement of some kind at least, then the small organisation might well wish to explore other avenues for Debt collection, such as a solicitor who specialises in Debt collection, a Debt collection firm, or opt for a Debt collection software package and take on the Debt collection internally.
There are pros and cons to each of these choices, the solicitor and the Debt collection firm will make charges, either up front, or after completion of the Debt collection process, but they are likely to be based on the value of the debt and so could be significant. They might also require part payments if the Debt collection process takes longer than calculated, such as for sending out multiple Debt collection letters. They would be expected to do a professional job and have experience in Debt collection and so they might well achieve a good success rate. The Debt collection software would be a one-off purchase but would need an employee to use it if the small organisation is to get value out of the Debt collection software. How fruitful it is depends mainly on how good the Debt collection software package is, such as the quality and content of the on-line help, or a written manual that includes a tutorial that can be used to train or direct the operator through the Debt collection process, in particular in the writing of Debt collection letters as these form the core of Debt collection. A good package would include examples of Debt collection letters that would show what sort of things to write at the different stages of the Debt collection process if multiple Debt collection letters are required. The Debt collection software should bring out the need to keep the wording of Debt collection letters on a professional and ethical basis as these demonstrate the professionalism of the small organisation and any use of emotional or unethical wording could so easily destroy the business relationship that between the small organisation and the large organisation.
The Debt collection software is a buy once use many times deal with, although the Debt collection software might have a cost in a part of a workers job and any printer consumables and also the postage of Debt collection letters.
In these difficult economic times it should be no surprise to see an increase in late payments of bills from one company to another, since some enterprises will feel that as cash is tight they might as well conserve their cash to accrue some interest for as long as possible. This situation has little concern for the effect this can have on a small company that has done projects for a larger company and has seen their latest bill for projects done go after its final settlement date. The small company might well have other unpaid bills with other larger enterprises and so their cash flow might well be under pressure. The small company might well consider legal proceedings and go to see a solicitor to see where they stand. If the debts have just gone past the late settlement dates, then the solicitor might well advise that they need to pursue the larger enterprises to try and get them to pay the bills. This advice will cost money however, as will any offers from the solicitor to manage the Debt collection operation on behalf of the small company. The reason for starting the Debt collection operation is because if the small company decides that at a later stage they have had little or no success in Debt collection themselves and they wish to go to court, the court will want to see evidence of the work they have done in the Debt collection operation before the case can be heard.
If the debts are many thousands of pounds in total then fees from either a solicitor who specialises in Debt collection or a commercial Debt collection agency might work out to a significant sum. So, the small company should be well advised to investigate Debt collection software and specifically a package that either includes a database, or can provide links into an existing database application, such as Microsoft Access or SQL, or Oracle for example. This is essential because it gives a means of recording the actions that take place during the Debt collection operation and these should then be available in a report to show to the court should this step be required.
A key part of the Debt collection operation is the creating of Debt collection letters and the Debt collection software should have a good guide to how to compose convincing Debt collection letters. This can be provided by good on-line help, a set of instructions or pre defined templates that can be used as a base for real Debt collection letters, or all of these things. It should be best for the small company to have one or possibly two employees handle the Debt collection operation, so that they can become familiar with the Debt collection software, the creating of Debt collection letters and get to know the Debt collection operation itself. The Debt collection software will need to register key actions such as when Debt collection letters are generated, at which stage of the Debt collection operation they are used, register incoming physical mail as well as emails and any part payments that are received, automatically updating the outstanding debt accordingly.
The beauty of Debt collection software is not just that it can make the Debt collection letters easier to compose, but that the one Debt collection software package can be used for many debts with no extra outlay, whereas a solicitor or Debt collection agency will make a new charge for each debt they handle.
When an invoice has been with the large organisation on or after the contracted final date for payment, for the small organisation to take the large organisation to court straight away would be a bad decision, not only because this option could seriously tarnish the working relationship, but also the court would not take the case unless acceptable efforts had been made for Debt collection prior to this. If it turns out that the small organisation has been awarded regular work by the large organisation and has not had any payment problems in the past, they will have certainly built up a good working relationship which counts on continued professionalism by both parties. A threatened court case, out of the blue, could certainly tarnish the working relationship, perhaps seriously and could be so detrimental to the running of the small organisation, especially if the large organisation was a major user in terms of income.
Once an invoice remains unsettled after the final date, the first option that the small organisation should take would be to communicate with the large organisation and try to understand what has caused the late payment. If it was an easily corrected error then that would end the Debt collection operation, but if the response was unsatisfactory then the small organisation could feel correct in taking steps in Debt collection, but first they need to check the contract between themselves and the large organisation to see if there is a late payment clause that can be used. If the contract does not provide a simple solution then the small organisation could need to think about what they can do next. They could communicate with a solicitor who is experienced in commercial Debt collection, or possibly look for a Debt collection business which likewise is experienced in commercial rather than personal Debt collection.
The third strategy is for the small organisation to assess Debt collection software that could provide an internally solution, at a much lower charge than the other two options, for not only is Debt collection software starting at around the £100 mark or less, but the solicitor and Debt collection companies could well charge a percentage of the debt for their Debt collection work, for each debt they manage. The Debt collection software is a single commitment and can be utilised for any future debts that the small organisation has at very little extra cost, such as consumables for a printer, or delivery costs for Debt collection letters. There is also the issue of resources for the Debt collection software, since it would require a member of staff to run the system and take responsibility for creating the Debt collection letters. In the interests of continuity, the small organisation could consider having two or more members of staff trained to run the Debt collection software so that there is coverage on occasions of sickness, holidays and emergencies. The Debt collection software ought to make the creating of Debt collection letters as easy as possible for the small organisation by the provision of a good set of instructions and better still, examples or templates illustrating what the Debt collection letters ought to contain at each stage of the Debt collection operation. This should enable the small organisation to run the Debt collection operation hopefully to a happy conclusion while at the same time retaining a good working relationship with the large organisation.
When a small firm has submitted their bill for jobs done or products supplied to a larger firm and then discover that it has not been closed after the agreed last settlement date, they could wonder if there is anything in the legislation that can help them. For business debts such as this, there is the “Late Payment of Commercial Debts (Interest) Act 2002”, which sets out one off payments and daily interest that the small firm can charge on the unsettled debt. This legislation is only applied when the contract, agreed between both companies, does not include a late settlement clause, if it does, then the legislation cannot be applied as well. The small firm has the option of making the charges or not however the large firm cannot opt out of the late payment legislation.
If the small firm wishes to keep working or supplying products to the large firm then before making any charges they should inform the large firm what they are proposing to do. In addition it is better to send a revised bill showing the charges being made so that it is clear what is being charged for. If applying[/spin] the legislation does not prompt settlement by the large firm then the small firm could see it as appropriate to begin Debt collection proceedings. This can be done by several ways; a Debt collection organisation, which has talent in commercial Debt collection, or a lawyer with similar knowledge, or even to obtain of a Debt collection software package and keep the Debt collection operation to themselves.
Taking on the Debt collection operation themselves can not only save money, but also enable the small firm to control the Debt collection operation. To allow them to do this professionally the Debt collection software should include a set of instructions which explains the Debt collection operation in detail and most importantly, how to generate convincing Debt collection letters. The small firm will also need to allow for sufficient resources if this method is to work and so competent employees should be picked, perhaps two or more so that there is coverage in the event or holidays, sickness or other absence. Computer literacy would be a key requirement and also a good standard of English in order to generate good quality Debt collection letters. The Debt collection software should be able to direct the user along the Debt collection operation and show them how to generate Debt collection letters suitable for different levels of the operation. A good way of doing this would be to supply a suite of samples of Debt collection letters so that the user has a starting point from which they can customise the live Debt collection letters to suit the large firm details, which will be essential if the Debt collection letters are to be taken seriously.
A really good benefit of Debt collection software is that once obtained it can be reused for any debts that come up in the future and the small firm only has to pay for printer consumables, stationery and postal costs. It the small firm was to use a lawyer or Debt collection organisation then they could well be required to pay 10% or more of the debt for the service, but this would be charged for any future debts as well, so making these rather expensive options.
When a small company that has been supplying parts to a large company opten finds out that the latest account has not been settled on time and is overdue, the traditional strategies of pursuing this debt would be to consult a solicitor, preferably one who specialises in Debt collection, or to take on a Debt collection firm and leave them to take on the Debt collection on the small company’s behalf. However by taking a strategy like this right away the small company might put the working relationship they have developed with the large company at risk and might not only jeopardise future orders but might damage their credibility in the wider business community. Even so, they ought to make some attempt to contact the large company and make them aware of the unsettled account and stress what it means to the small company. If this fails to get the large company to pay the account then the small company will need to look into what choices are open to them apart from the traditional choices as mentioned earlier. There is in reality only one viable alternative, Debt collection software, which the small company can buy, own and reuse as frequently as they want, should future Debt collection be required.
They will need to carefully evaluate the market offerings for Debt collection software and see if they can get a balance between cost and functionality. In general, the minimum functionality the small company want to be looking for are; the ability to generate convincing Debt collection letters and the ability to store activities related to the debt in a database, time stamping each action so as to provide a record of what was carried out by the small company in the Debt collection operation.
The Debt collection letters are at the heart of the Debt collection operation and must be carefully written if they are to be effective in the Debt collection operation. The Debt collection software should provide help in composing the Debt collection letters, either by a well written tutorial that leads the user through the operation and explains what they are best putting in the Debt collection letters. In this way the user will be made aware of the ways of composing the Debt collection letters, as well as pointing out the importance of good grammar and spelling. An alternative to a comprehensive tutorial might be the provision of electronic templates for the Debt collection letters, which the user could use as a starting point for their own Debt collection letters. In this context the record keeping process of the Debt collection software could provide useful in allowing the user to bring in details of the debt for insertion in the Debt collection letters, such as the large company details and the debt value, which might help in preventing transcription errors that could happen from typing these from a paper document.
By the use of suitable Debt collection software the small company should have a good chance of getting the large company to settle the account without losing credibility and keeping future orders. The recording of activities by the Debt collection software will be useful in case the large company fails to settle the account and the small company decides to take them to court, as this record will show that the small company has made strong efforts in the Debt collection operation already.
For a small enterprise money is so critical, it is really the life blood of small companies. In the current financial downturn, especially where the financial institutions seem to have backed out of promises to ease borrowing for small companies, they need to have their accounts cleared quickly as this might well be their only source of funding if bank loans are not available. Where a small enterprise has become reliant on a small number of larger companies, they will have most likely built up a good business relationship with the majority of them and so will need to be careful not to damage any of these relationships. With this in mind the best strategy for the small enterprise might well be to communicate with the large enterprise concerned and try and get to know why the invoice has not been cleared, in case there has been a simple oversight that can be easily rectified. This should demonstrate to the large enterprise that the small enterprise is proceeding in an ethical and professional manner and is prepared to take other views into consideration.
If the small firm feels that the large enterprise is using delaying tactics then they might well feel fully justified in using Debt collection procedures to try and recover the debt. The risk here is that if they have sensed the logic of the large enterprise in error then they might well upset them and find that they get some backlash, which might disrupt the business relationship with the large enterprise, which in turn could affect their relationship with other of their customers. The options for Debt collection for the small enterprise in reality are as follows; a solicitor specialising in business Debt collection, a Debt collection agency with a similar speciality and finally Debt collection software, which allows the small enterprise to take the Debt collection process in-house. This last path would not only save money, so essential to the existence of the small enterprise, but would also give them full control of the Debt collection process. The creating of Debt collection letters is at the centre of the Debt collection process and the Debt collection software should provide good quality help in this area. This help can be provided by a user guide, which should take the user through the various stages of the Debt collection process, covering legislation such as the “Late Payment of Commercial Debts (Interest) Act 2002” along with advice as to how to generate convincing Debt collection letters. Examples of such Debt collection letters for each stage of the Debt collection process would help the small enterprise to become familiar with the process and might provide a quick and successful conclusion to the Debt collection process. Although Debt collection process can be obtained for under £100, which might well be a cheap cost for a small enterprise when compared to something like a charge of 20% of the debt that might be charged by a solicitor or Debt collection agency, the small enterprise need to allocate sufficient resources. This will include assigning one or two members of staff to use the Debt collection software and generate the Debt collection letters, as well as the possibility of a new computer being needed and might include a printer as well. The running costs should be small however, with printer consumables and paper plus postage costs for the Debt collection letters.
If the small enterprise people take care in creating Debt collection letters using good English and grammar and avoiding emotional or threatening wording then they should avoid the risk of alienating the large enterprise and instead get them to pay the invoice.
In the current financial downturn, when a small organisation has been providing services or goods to a large organisation on many occasions, it may be a setback when their last invoice has not been paid by the agreed last payment date. If the large organisation has kept up a good clearance record in the past then the small organisation may feel that they have a good enough business relationship that they don’t want to damage by going right into Debt collection procedures and sending out Debt collection letters. If the small organisation has a late payment clause in their terms and conditions then they should apply this, but do it in an ethical and professional way, also keep the large organisation informed of what they are going to do as this should not damage the business relationship.
It may be that the small organisation has not had to take care of Debt collection in the past and may now need to check out what their options are. While they may be happy with posting invoices and then a reminder for a late payer, they may be less confident with composing Debt collection letters. In any business decision, there are many factors but money will always be one of the foremost factors and in the Debt collection world the financial outlay can vary greatly between the various options. There are three significant options for Debt collection; a solicitor who is talented in Debt collection, a Debt collection company with commercial experience and finally, Debt collection software. The first two options allow the small organisation to pass the Debt collection procedure to a third party, while the third strategy brings the Debt collection procedure in-house. As may be expected the financial outlay associated with the three different options are very different as the solicitor and the Debt collection companies will normally set theirfees as a percentage of the debt which may equate to be a significant sum, although some may offer a no win no fee deal. On the other hand the Debt collection software may well start at under £100. The major difference here in cash terms is that the solicitor and Debt collection companies would invoice for every future Debt collection they were commissioned to handle, whereas the Debt collection software is one off purchase and so would only require running costs such as paper, printer consumables and postage costs.
The Debt collection software would also incur a cost in people terms since a employee would need to be set aside to operate the Debt collection software, at least as one part of their duties. The small organisation may feel that a second employee who could be trained up would provide cover for sickness, holiday or other absence, all taking time away from their normal activities. The core part of Debt collection is to write convincing Debt collection letters, which the solicitor and Debt collection companies should be comfortable with, while to compensate, the Debt collection software should provide a user guide and templates of Debt collection letters. The Debt collection software should advise the small organisation of the importance of a plan of action and with this in mind there should be templates of Debt collection letters that are appropriate for each stage of the plan. The small organisation may need to tailor the Debt collection letters around any late payment clause in their terms & conditions so that they look correct to the large organisation.
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