It is widely reported that SME's are experiencing significant decreases in revenue due to the impact of COVID-19, with some SME's facing reductions in revenue of up to 50%.
In these unprecedented times chasing unpaid invoices can be a drain on already depleted resources for the average SME, but it is critical to their survival. By the middle of April it was reported that the coronavirus pandemic had shut or temporarily closed a quarter of UK businesses.
It may be helpful at this already stressful time to consider outsourcing your debts to assist in cash flow and alleviate some of the pressures businesses you are facing. But a word of caution, not every debt recovery company will be the right partner for you, and there are several things to consider when you are selecting a debt collection agency or solicitors’ firm to work with.
Small claims
There's no doubt, it is now easier than ever to pursue customers for unpaid invoices and debts of up to £10,000 can be claimed through the small claims process. The small claims process has been designed to assist individuals and SMEs. It even includes a free mediation service to assist the parties in reaching a settlement if a claim is defended. However, debts above £10,000 fall outside of the small claims process and need to be treated carefully. Seeking professional legal advice before pursuing such a claim is highly recommended. Despite the widespread disruption caused by COVID-19, the Courts continue to process debt recovery claims, albeit processing times have been impacted. Therefore, getting your claim off the ground at this early stage is imperative to ensure the resolution of a matter at the earliest opportunity, this will be easier once Court processing times pick up and we progress out of lockdown and towards the often discussed "new normal".
It's crucial to find a debt recovery service providing a full service, from pre-legal through litigation to enforcement. Because of the issues currently experienced in the Court system, it is now more important than ever to direct efforts towards resolving matters at the pre-legal stage. However, due to Covid-19, several debtors may not be prioritising the money your business is legally owed at this time.
Outsourcing your debt collection strategy to a service provider that can offer a full solution will show a clear escalation process to debtors. Some debt recovery agencies will not have the capability to issue legal proceedings and/or deal with defended claims. In essence, they may need to outsource legal proceedings and defended claims to solicitors taking the process further away from you.
Firms will often specialise in certain types of debt which they frequently recover; this allows them to understand the situation quickly and apply tactics learned through the experience of addressing similar challenges before. It's important to remember that disputed debts can often raise a number of complex issues in different areas of law.
It's also wise to think about the costs of recovering the debt; for example, London-based debt recovery agencies are likely to charge more than regional firms. It's important to consider a firm with a pricing model that suits you. Some firms will charge on commission and others on fixed fees.
Protecting customer relationships
Debt recovery can be a stressful process, particularly so in these difficult economic circumstances. If you decide on Court action, then you will need to ensure you gather appropriate evidence such as copy invoices, contracts and any correspondence exchanged between the parties. This can be an additional drain on already depleted resources. Any weakness or mistakes in your evidence may affect your pursuit of monies owed.
Client relationships are very important, using an outsourced debt recovery can help you protect those relationships. In particular, law firms with a debt collection arm, will be able to handle every aspect of the required communication with your clients, who will understand you are merely protecting your business and cashflow.
Law firms experienced in debt recovery have the necessary capability and knowledge if the action needs to be escalated. They also understand the commercial realities of the supplier-customer relationship and the particular difficulties that all business are experiencing at the moment. They will offer pragmatic advice regarding which debts are worth pursuing in the current environment.
Resolving disputes before Court
Ideally, it would be best if you tried to settle disputes and exhaust all reasonable options before commencing court action. However, if court action is necessary, seek legal advice.
Once you engage in the court process, there are rules to follow, and again, any mistakes could reduce your opportunity to recover the debt successfully. Court is only really a sensible option if the customer not only refuses to engage in the debt recovery process but also has the funds to cover the unpaid debt. Otherwise you risk throwing good money after bad.
Timing
Many businesses may be holding off on pursuing their commercial debts during the period of lockdown. But finding a service provider who can offer a fully functional service during this time is vital to bring your debts to the attention of your debtors, and secure payment at the earliest opportunity.
Choosing the right debt collection agency could well affect the ultimate success of your money being recovered, so do your research and choose wisely.
Finally, consider engaging the firm regularly to act as your outsourced credit control department, delivering a seamless service that also takes the pressure off your in-house team.
