When the powers of the Small Business Commissioner are strengthened, it will hopefully change the culture of late paying prevalent in the UK, writes Phil Wilding, head of debt recovery at law firm Wright Hassall – but chasing unpaid invoices can be a drain on resources for the average SME. Seeking professional support will help, but not every company will be right for a business, and there is a number of considerations to bear in mind when selecting a debt recovery partner …

It’s now easier than ever to undertake action yourself to pursue debts up to £10,000 through the small claims process, but debts above £10,000 need to be treated carefully, and seeking professional legal advice before pursuing such a claim is highly recommended.

Businesses will typically consider a debt recovery agency (DRA) to help pursue their debts. It’s important to find a service provider offering an end-to-end debt recovery solution, from pre-legal through litigation to enforcement.

This allows the level of activity or tone of recovery message to be escalated. But if the DRA does not have the capability or expertise to take legal action, then it effectively has no teeth. Any threats they make of legal action are essentially empty – unless they then outsource their legal requirements to a solicitor.

And remember, London-based DRA are likely to charge more. Firms will often specialise in what debts they recover, which allows them to understand the situation more quickly and apply tactics learned through experience of addressing similar challenges before.

Chasing upaid invoices is a considerable drain on SME resources

An explanation of costs

Work with a business that understands that each debt requires a different approach, rather than a prescriptive, one-size-fits-all solution.

When the initial cost for the first letter or call is very low, it tends to indicate a system predicated on bulk processing, rather than a tailored service. Ensure you have a quote for the expected cost of recovery, as any reputable DRA must outline their fees or commission rates during the engagement process.

Also, look for a DRA regulated by the Financial Conduct Authority (FCA), which offers you protection if they fail to act in an appropriate manner, and for added quality assurance work with a law firm regulated by the Solicitors Regulation Authority (SRA).

Protecting customer relationships

Debt recovery can be a stressful process. If you decide on court action, a lot of evidence will need to be gathered, like copy invoices, contracts and copies of correspondence exchanged between the parties – whilst continuing business as usual.

Your customers will discuss you, and any weakness or mistakes in your pursuit of monies owed could trigger a raft of unpaid debts as more test your willingness to get tough.

Outsourced debt recovery can help protect those all-important client relationships. Law firms in particular will handle every aspect of the required communication with clients, who will understand it’s just the way you protect your business and your invoices.

Law firms experienced in debt recovery have the necessary teeth if the action needs to be escalated, but understand the commercial realities of the supplier/customer relationship, and will offer pragmatic advice regarding which debts are worth pursing.

Work hard to avoid court 

Ideally, you should try to settle disputes and exhaust all reasonable options before commencing court action. However, if court action is necessary, seek legal advice – this is now beyond the scope of DRA with no legal aspect to their service.

Once you engage in the court process, there are rules to follow and again, any mistakes could reduce your opportunity to recover a debt. 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.

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 on a regular basis to act as your outsourced credit control department, delivering a seamless service that also takes the pressure off your in-house team.