Whilst many small businesses are aware of how detrimental bad debts can be to cash flow, the cost of outsourcing to a debt collection agency is still difficult to justify for some.

The reality is that many debt collectors only charge a commission on debts recovered.  When you consider that these debts are often so difficult to chase that, without the help of experts, the likelihood is that they would be written off, the cost is worth it.

But there are more financial benefits a small business can take advantage of to help offset the time, hassle and cost of late payers.

If a client or customer is paying late you are within your rights to charge interest on the outstanding amount, providing the invoice isn’t in query and it is with another business.  This should be used as a last resort with good customers (preserving the relationship is often the better financial decision) however, for those debtors who offer no future business opportunities, payment settlement should be the main goal.

Even if you haven’t set out payment terms, the law states that payments should be made within 60 days of a customer receiving the goods or invoice from a business.  After that time they are considered late.

Notifying a debtor of your intention to charge interest can often be all that is required to motivate a business to pay without you having to add on any further costs.  It is up to you if you decide to make the claim.  If you decide to pursue interest you will need to issue a new invoice.

If you haven’t already set an interest amount of your own in your terms and conditions, you can charge statutory interest at 8% plus the current Bank of England base rate under the Late Payment of Commercial Debts Act 1998.

Whatever you decide to do, leaving a debt to remain unpaid without any course of action will only make it more difficult to recover.  For further advice of debt collection for businesses, contact the debt recovery experts at P&J.