Regardless of the size or age of a business, there will always be times when a client chooses not to pay.
When this happens, it can put a lot of strain on the company, as well as subjecting the business owner to a lot of stress and frustration. Being owed money is always a challenging situation to deal with, and it is important to know what to do to resolve the issue quickly.
Recent studies have shown that up to 70% of businesses are owed money, a number that has risen steadily since the beginning of the Covid-19 pandemic.
There are many reasons why a business might be owed 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 could have absconded after receiving their goods, leaving the supplier out of pocket.
A small business, sole trader or someone that is self-employed may be owed money from a much larger organisation that they have done work for. In this situation, they may not want to confront the debtor as they are worried that this may sour the relationship with a potential long-term business partner.
No matter what the cause of the debt, it is important to take steps to resolve the matter as soon as possible. In the case of a business, it is also important to resolve the matter professionally and amicably. If a business relationship is jeopardised, a company cannot benefit from profits that will come from future endeavours with that particular client.
If you are a business owner that is owed money, you may also be considering the cost of recovery. 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 various ways for a business to recover money that is rightfully owed to them. If you or your business has provided goods or services to a client that has not paid, you will most likely be thinking about one of the following options.
Instructing a Professional Debt Collection Agency
One of the more increasingly popular ways of recovering a debt is to hire a professional debt collection agency. An agency such as this will be able to recover money owed to a business swiftly and effectively whilst incurring a low cost.
Many agencies specialise in particular types of debt or specific working sectors. For example, Federal Management is widely regarded as the UK’s leader in commercial debt collection. As they are the only UK based agency to be regulated by the Financial Conduct Authority (FCA), their unique and professional approach resolves matters effectively and amicably for all parties.
Smaller businesses or those that are self-employed may choose to use specific industry specialists, such as Frontline Collections, which is the UK’s leading private debt collection agency.
Instructing a debt collection agency is an effective option, but the cost of doing so should factor into your decision-making process. Whilst this is significantly more cost-effective than other options, an agency will charge for its services, and this should be taken into account.
Small Claims Court Action
Another common method business owners use to recoup money owed to them is to take court action against a debtor.
Often, businesses will send ‘final notice’ letters in advance of this that state their intention to take this course of action. In some cases, this is enough to prompt a debtor to pay what they owe.
Whilst this can be an effective method in some cases, it does incur a great cost to the business that undertakes this endeavour. Legal fees can quickly mount up over time, and court proceedings can often take months or even years to fully work through. A great deal of time will be required for the business to gather all necessary documentation related to the case, and there is no guaranteed outcome.
If the case is lost, then the debt will be written off, with the result being that the company that is owed money is now even more out of pocket. As well as this, there is a potential that a business relationship could be put under a great deal of strain.
Court action can be effective in many cases, however, the cost must be accounted for before committing time and resources.
Mediation and Arbitration
Negotiation can be a very effective way for businesses to settle matters relating to debt without needing to go to the expense of hiring a third party.
In some cases, resolving the matter outside of court can be more productive than taking the legal path, and can serve to strengthen business relationships in certain circumstances. For small businesses, freelancers, sole traders and those that are self-employed, this could be a good way of saving money but does cost time. A decision must be made whether or not it is financially viable to postpone current projects to recoup losses from another.
Unfortunately, there will always be those individuals that will do or say anything to avoid paying what they owe, and in cases like those, it is better to involve a third party as soon as possible. Being able to spot the warning signs of a customer that is not going to pay is a useful skill for any business owner to have, and can prevent wasting time and money in the long run.
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