Minister Jo Swinson announced on the 15th January 2015 that new rules for Debt Relief Orders (DROs) will come into effect from October 2015.  What will this mean for UK business and debt collection in the future?

What is a Debt Relief Order (DRO)?

DROs were introduced in 2009 as a low cost alternative to bankruptcy for people with debts less than £15,000 and little to no assets (less than £300).  Once the order has been granted, the Insolvency Service divides up any available cash from the debtor between all of the creditors for a period of 12 months.  During that period the creditors are not permitted to pursue the debtor.  If, after the 12 months, any debt remains, it is written off.

How will DROs be changing?

The new rules just announced have pushed the debt figure that can be covered by these orders from £15,000 to £20,000.  So far, since the introduction of DROs, approximately 140,000 orders have been granted.  That figure is set to rise by 3,600 each year following the new ruling.

Whilst the change is welcomed by many struggling with debt, the impact of the new DRO limit won’t be such good news small businesses.

With someone going bankrupt every minute in the UK, it gives some indication to just how many businesses will suffer from debts remaining unpaid.  The impact of that on a small business can be detrimental.

Small businesses rely on their customers paying on time to ensure cash flow remains healthy and their business stays afloat.  These new measures will mean that many debts will remain unpaid and, most likely, be written off leaving businesses with no means of recouping their losses.

Advice to small businesses

P&J Debt Collection Services offers advice to small businesses:

“As with any debt situation, spotting the debtors who are suffering financial difficulty before they apply for a DRO, IVA or bankruptcy, is key.  Unfortunately, there isn’t anything you can do once the order has been granted. Instead, try to protect your business by monitoring your debtors closely.  Don’t let any debts go beyond your payment terms without a phone conversation with the person responsible for the debt.  In that conversation, you must establish their cash position.  Don’t be afraid to ask direct questions, politely.  If your debtor can’t afford to pay you straight away, either in full or part payment, find out the reasons why.  Make sure you have their latest address and contact details too.  If you are concerned, contact a professional debt collection agency and instruct them to deal with the matter on your behalf before it’s too late.

To find out more about the debt collection services available to your business, contact the friendly team at P&J.