In normal circumstances a firm will require a bill to be settled in the month following the bill date but this must be written in the contract and agreed by both parties, in writing. In the absence of such an agreement then in case of dispute the law defaults to 30 days from the bill date as the last date for payment. Late payers can be the bane of small firm cash flow, as there may be a pattern to some; maybe they settle two months after the bill date or maybe they are normally on time but are occasionally late. In any event it makes business hard for the small firm to plan the future work as they may be required to pay for goods that were used on the contract concerned and whilst they may well have revenue to pay their suppliers, they may have to purchase further supplies for other contracts and pay salaries, naturally. The late payer can cause problems in creating a deficit in the books later on when it is time to pay their own bills, so how can the small firm advise the debtor to pay up without losing a valuable client? In any event the last thing the creditor wants to happen is to be forced to write off a debt, so they must make the effort to collect them.

For a small firm the option may well be between managing the Debt collection internally, passing it over to a solicitor or taking on a Debt collection company. The last two options can involve significant costs for a small enterprise and so may be discounted by many. The internal path will require dedication in employee time, but by the use of a good Debt collection software package the time spent can be optimised to do the work efficiently. Some applications are inexpensive, not cheap, and are available for under £50 including VAT. They possibly come with either templates for the Debt collection letters or samples and details in the accompanying manual or e-book. These Debt collection letters are at the heart of the Debt collection process as they are what the debtor will get and can make or break the success of the process.

The Debt collection letters should be written in cool, unemotional and formal terms so that they don’t upset the debtor, whilst at the same time demonstrating to them that the creditor is determined. Ideally the Debt collection software should have templates as this ought to make the experience of creating the Debt collection letters straightforward, next best would be an e-book, such as a pdf file from which sample Debt collection letters can be copied and then updated to tailor them for the debtor firm. The least preferable method is to have to manually edit a letter from an instruction manual as this it time consuming and can be liable to errors, which are NOT wanted in Debt collection letters.

The instructions should detail the steps of the Debt collection process and the Debt collection software should likewise use these steps for undertaking a Debt collection action. This method should recover many debts and will hopefully be a reminder to the debtors that you must be paid on time next time. However if there is a need to escalate a debt to using the legal system should the in-house process fail; the Debt collection software should have the ability to record the actions at each stage of the process, covering those carried out from within the Debt collection software and outside actions, such as received letters. In this way there is evidence that the creditor has made serious efforts to do the Debt collection already.

When a small firm that has been supplying parts to a large firm on many occasions finds that the latest account has not been settled on time and is overdue, the formal procedures of chasing up this debt might be to consult a solicitor, preferably one who specialises in Debt collection, or to go directly to a Debt collection firm and let them take on the Debt collection on the small firm’s behalf. However by using an approach like this straight away the small firm could put the professional relationship they have grown with the large firm at risk and could not only lose future orders but could harm their credibility in the wider business community. Even so, they need to make some attempt to contact the large firm and make them aware of the unpaid account and stress what it means to the small firm. If this fails to get the large firm to pay the account then the small firm will have to look into what choices are available to them apart from the formal choices as mentioned earlier. There is in reality only one viable alternative, Debt collection software, which the small firm can purchase, own and reuse as many times as they require, should future Debt collection be required.

They will need to carefully investigate the market offerings for Debt collection software and attempt to reach a balance between cost and functionality. In general, the minimum functionality the small firm ought to be looking for are; the ability to write convincing Debt collection letters and the ability to store actions related to the debt in a database, time stamping each happening so as to provide a record of what was done by the small firm in the Debt collection activity.

The Debt collection letters are at the heart of the Debt collection activity and must be carefully written if they are to be effective in the Debt collection activity. The Debt collection software needs to provide assistance in creating the Debt collection letters, either by a well written tutorial that leads the user through the activity 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 building up the Debt collection letters, as well as emphasising the importance of good grammar and spelling. An alternative to a comprehensive tutorial could be the provision of electronic templates for the Debt collection letters, which the user could use as a basis for their own Debt collection letters. In this context the record keeping aspect of the Debt collection software could provide help in permitting the user to recall details of the debt for placing in the Debt collection letters, such as the large firm details and the debt value, which could help in preventing transcription errors that could come about from typing these from a paper document.

By the use of suitable Debt collection software the small firm needs to have a good chance of getting the large firm to settle the account without sacrificing standing and retaining future orders. The recording of actions by the Debt collection software will be useful in case the large firm fails to settle the account and the small firm decides to take them to court, as this record will show that the small firm has made strong efforts in the Debt collection activity already.

If a small enterprise has done jobs or supplied products for a larger enterprise and has then sent the bill for the jobs or products but after the usual waiting time the larger enterprise has still not cleared the bill, what risks are there for going straight to Debt collection?

If the small enterprise went to a solicitor or to a Debt collection business or then again if they obtained Debt collection software to do the Debt collection internally, one way or another, the larger enterprise would, at some point, receive Debt collection letters. This may well make the larger enterprise feel that the small enterprise didn’t understand why the bill hadn’t been cleared on time and were not interested in the reasons why.

Apart from the major risk of the larger enterprise opting not to use that particular small enterprise in the future, the other business risk is that the small enterprise may well be known as one that doesn’t contact other organisations when a payment problem comes about and simply goes right into Debt collection. A further risk awaits in case the small enterprise decide to use Debt collection software and doesn’t read tutorials or use the help or even read the instructions to understand the legal side of Debt collection as well as how to best write Debt collection letters. The risk here is that if the small enterprise eventually opts to take the large enterprise to court then they must show evidence of having worked hard to get the large enterprise to clear the bill and failed. If they just send out Debt collection letters without contacting the large enterprise beforehand, this may not be acceptable as sufficient for a court.

Their best course of action would be to first check the contract for a late payment paragraph and if present, follow this procedure. If there isn’t such a paragraph then they have legal rights to charge interest on the unpaid debt as well as a one-off charge for Debt collection work. In this case they should talk to the large enterprise and understand their reasons for not paying the bill, as it may be a simple oversight on their part which they may well sort out right away. On the other hand it may be that they are somehow unable to clear the bill and they may have cash flow issues themselves because of uncleared bills of their own and so may ask for an extension to the final payment date. These reasons may well be satisfactory for the small enterprise, as they will be hopeful that they can get more jobs from the large enterprise, as the payment problems may be short lived. If however they aren’t given a sensible reason for non payment, then they may feel the need to take it further and start off the Debt collection activity.

If they opt to use either a solicitor who has Debt collection experience or a Debt collection business then they may find that the costs for these services amounts to a significant proportion of the debt itself and if they know of these figures they may well find out about the Debt collection software path as a way of handling the Debt collection internally. In this context, as mentioned earlier, the small enterprise would be well advised to study the instructions that should come with the Debt collection software so that they both know about the Debt collection activity and how to write good Debt collection letters. The Debt collection software should include either an internal database or a way of linking to an existing database application so that all events that are taken are recorded and date stamped. Events such as writing and sending out Debt collection letters, recording the arrival of post or emails from the larger enterprise and phone calls should all be stored as part of the work being done for the Debt collection activity and should be valid if the case comes to court.

In the vast majority of occurrences the first action that a creditor is advised to take when a bill is unsettled after the normal credit period is to make contact with the debtor, by way of a phone call, personal visit or non-threatening letter. If any of these moves do not make the debtor settle the bill then the creditor will need to consider what action to take next. If the creditor has been in the position of late payment of accounts previously they may well have evolved a process for handling it and so would probably just go ahead and take that course of action. If however, this is the first occasion, or perhaps they had been unsuccessful in previous debt collection situations, they would need to investigate their choices.

These mainly boil down to three; talk to a solicitor, or a debt collection organisation and thirdly, look around for some debt collection software and do the job themselves. There are pros and cons to each method, with the solicitor the creditor is paying for experience, especially if the solicitor specialises in commercial debt collection, when they might be able to get payment quickly. Their costs might be for the total number of debt collection letters, or perhaps a percentage of the debt on collection.

The debt collection organisation may be harder to choose unless they have local offices, otherwise it means a search on the Internet and then either choose based on web site information, or after contact with them. What would not be so easy to uncover is how honest they are when facing a debtor on the creditor’s behalf, since any behaviour that is unprofessional may well reflect on the creditor and could give them a bad name with the business community. It is hoped that such bad debt collection agencies are few and far between, but if possible the creditor should try and find previous customers of the Debt collection organisation and see what they say. The costs for a debt collection organisation are most likely to be calculated as a percentage of the total debt owed and possibly have expenses added on top of this. Some may offer a no win – no fee deal, but it is unlikely that such a debt collection organisation would not win, and it depends on what is defined as a win; part payment, no matter how little might be a win, but it would be most likely that the charge would indeed be calculated on the total debt.

The Debt collection software method should allow the creditor to have full control of the debt collection process, compose their own Debt collection letters from instructions in the manual or perhaps by using templates that should be included with the debt collection software. To get the best out of the debt collection software the creditor would need to set aside some resource to its operation, perhaps make it a part of a current employee’s job. For this in-house option the important subject is to understand how the debt collection process works, what legislation is available to help a creditor and how to compose debt collection letters that are effective in convincing the debtor to settle the account. This method has a useful cost saving in that any solicitor or debt collection organisation would charge a fee for every debt collection, whereas the debt collection software is a purchased item and can be reused time and time again with only minimum outlay, such as postage and printer consumables.

In the present financial downturn, cash flow for organisations may be an issue, in that if they are owed money for work or sales they will have to consider their options on Debt collection. Do they take it on by talking to the debtor company or do they employ the services of a solicitor to pursuefollow up the debtor for settlement. A Debt collection agency may offer curiously attractive deals for example no win no fee, but such agencies may assume that simply a paltry payment from the creditor is a win and so collect their fee, which may be calculated on the whole debt. Not all Debt collection agencies would work in this way, but would their web sites show this degree of detail and so give the creditor the information to carry out an informed decision? The other choice is to take on the Debt collection in house by using a Debt collection package, consisting of Debt collection software and Debt collection letters. Such packages can be obtained from under £50 and enterprises who offer typical packages would be expected to be able to give full details of what is in the package and maybe also some clue of the time required to work through the software for a general Debt collection process. The costs for a solicitor or a Debt collection agency are likely to be on a sliding scale and would generally be calculated from the debt amount, although a solicitor may charge a set fee for the first letter, any further Debt collection letters may be more expensive perhaps.

When using Debt collection software packages both the creditor and the Debt collection software should have knowledge of the Late Payment of Commercial Debts (Interest) Act 2002, which was first set up in November 1998 and amended in August 2002. This legislation permits a creditor to claim both a one-off payment and also interest payments as soon as an account becomes overdue. If the creditor has not referred to this act in the original contract with the debtor, there is nothing stopping them from applying the aforesaid charges. However it may bring in some concern from the debtor to be just shown a higher invoice and this may cause problems should the creditor later submit an application for a future contract with the debtor business. To try and save this from coming about it would be best for a creditor that hasn’t referred to the act to contact the debtor either by phone or by personal call and courteously inform them that the bill is late and they would not wish to have to apply the charges that they are permitted to do by the act.
If this fails to stir the debtor into payment, then the creditor will need to use the Debt collection software in earnest and write Debt collection letters, which should already be available in the Debt collection software as templates, ready to use when the debtor details are entered into the database. The creditor should be able to alter the Debt collection letters text to suit their situation or relationship with the debtor, but they must resist using emotional language as this will show them in an unprofessional light with the debtor. In this way it is hoped that the debtor will be persuaded to pay the bill and also settle up on time in the future.