Improve the success rate of your debt collection process
By taking a consistent and robust approach to your business’s credit management process you will minimise your risk of late and non-paying customers. Information is key so they say, the more information you can acquire on a potential customer the greater your chances of securing payment on work carried out or supplied. Using a credit application form is the easiest way to ensure relevant and appropriate details of the potential customer are being taken. It doesn’t have to be long winded or lengthy, simply take the basic details you need to open a credit account and protect yourself:
Company Name AND Registration No
The entity of business if not Limited
Names of key people in the business
Contact numbers & email addresses
Using a credit application form is one thing but the key to protecting yourself is in the detail and checking the form and information provided for any anomalies is where you will be able to protect yourself the most.
- Use a credit reference agency to check you have been approached by a bone-fide company.
- Check the Directors of the Limited company and see if they have a lot of either active Directorships, resignations or insolvent companies.
- Use your credit reference agency to look at the trading history of the business, have other suppliers experienced non-payment or made enquiries about potential fraudulent applications.
Tip: Where you can, make a physical visit to the customer or potential customer if something doesn’t feel right to you.
Research and Monitor Company Trading History:
We urge our members and the wider construction industry to protect their businesses by actively monitoring trading experiences and acting upon early warning signs. Don’t wait for the information to come to you, use an industry specific service that can spot changes in payment patterns resulting in regular, more in-depth and up to date checks being carried out to pick up information quickly.
If you already have a trading history with the business look at the orders that have previously been placed. Some companies will establish a good line of credit with suppliers, placing small, regular orders to give the appearance of a good customer. However, once an order pattern starts to change, ask questions to establish the reason for the change.
It is important to react to new information regarding your debtor. For example, how many other people do they owe, is there a new CCJ, has the credit limit dropped? if so, why? This is all information you should react to. For example, if a new CCJ is registered then you should skip a few steps in your credit control process and get it to a third party asap. Alternatively, pick up the phone and talk to your customer. It would not be unusual for you to be monitoring the customer so it should come as no surprise to them that you know about the new information.
Do not ignore your gut feelings, noise on the ground or unusual trading patterns with the business. For example, why is the business asking for much more than usual and why are they not answering your call or following up on an email when they normally would? Has there been a sudden change in the way payment is received?
Ideally for the best chance of collection a debt should be no longer than four weeks overdue before passing to a third party. At Top Service we would suggest no more than three letters are sent in-house. If they haven’t responded then they are most likely ignoring you and it will be prudent to refer swiftly into the next stage of your collection process.
Act on information early and protect your business from the impact of bad debt.
A one size fits all approach should be avoided.
Look at your options for collection, take advice from your collections service provider on the best course of action for you and your customer a one-step approach is not always the most effective. Above all, ensure your credit control team have the tools and support to be able to be pro-active.
Know your rights
For commercial debts you can claim interest, compensation and costs of using third party collectors when applying the statutory legislation for late payment.
Under the Late Payment of Commercial Debts (Interest) Act 1998 you can claim interest at a rate of 8% above base rate and a compensation figure, depending on the value of the debt you are collecting:
|Amount of debt||What you can charge|
|up to £999.99||£40|
|£1,000 to £9,999.99||£70|
|£10,000 or more||£100|
If your collection costs are more than the compensation figure you are claiming, you can claim the surplus under the late Payment of Commercial Debts regulations 2013.
If you are unsure about what interest and other charges you are entitled to contact us for FREE advice.
- Carry out robust and consistent financial processes.
- Information is key. Use a credit application form to ensure relevant and appropriate details of the potential customer are being taken.
- Monitor company trading history.
- Act Early. It is important to react to new information regarding your debtor.
- A one size fits all approach should be avoided. Look at your options for collection, take advice from your collections service provider on the best course of action for you.
- Know your rights. When it comes to claiming interest, whether it is contractual interest or statutory interest, you are entitled to it.