October 2, 2023
Before taking action, it’s essential to understand the extent of your bad debt problem. Review your financial records, outstanding invoices, and the age of these debts. Identify patterns, recurring issues, or specific clients with continuing payment delays. This will help you gauge the magnitude of the problem and develop a targeted strategy.
Prevention is better than cure when it comes to bad debts, so establishing clear and consistent credit policies can help minimise the risk of invoices going unpaid. This might include performing credit checks on new clients, setting credit limits, defining your payment terms and taking money up front, particularly for large contracts. Communicate these policies to your customers before entering into a contract with them to manage their expectations. Better still, incorporate these policies into your written contractual terms.
As soon as an invoice becomes overdue, take action. To begin with, send polite reminders to the debtor, reminding them of the outstanding payment and any applicable late fees or interest charges under the contract. Keep records of all communication.
If your customer tells you they are unable to pay the full amount immediately, consider meeting with them to negotiate payment plans. A structured plan that allows them to settle their debts over a reasonable period will be preferable to writing the debt off, or engaging in lengthy and expensive litigation. Ensure these arrangements are documented and agreed by both parties.
If negotiation and debt collection efforts prove futile, consult with your solicitor to discuss your legal options, which typically involve pursuing a County Court judgment or initiating insolvency proceedings. Your legal representative will guide you through the intricacies of these processes. It’s important to remember that in most cases debts which are over 6 years old will be unrecoverable under the Limitation Act 1980, so if you have debts approaching that age you should get in touch with your solicitor as soon as possible to make sure you don’t miss the deadline.
Taking control of bad debts is an essential to maintain financial stability and ensure the long-term sustainability of your business. By following these steps and seeking legal advice when necessary, you can navigate the challenges of bad debt whilst minimising the disruption they can cause to your business.
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