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Bad Debt Recovery – What options are available?

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Updated: 1st July 2021

Chasing bad debts as a company

Late payment and bad debts are insidious issues that can dramatically reduce a business’ profitability, and cause severe decline if not addressed effectively. Recovering bad debts requires persistence, but also a systemised approach.

Bad debt recovery options can include professional mediation services, debt collection specialists, and court action, but careful monitoring of debtors is key to help you avoid severe financial difficulty due to the levels of bad debt in your business.

You can also look out for warning signs in relation to late payments and doubtful debts. So how do you spot a late payment that might become a bad debt? These are just a few potential warning signals:

  • Difficulty in contacting your customer or client – they’re always unavailable when you phone, and/or ignore your written communications
  • They deliberately take advantage of errors or omissions on your documentation – mistakes on invoices, for instance – to build delay into the payment timescale
  • They make ongoing promises to pay but deadlines pass unmet

If bad debt figures are rising in your business, how can you deal with the situation effectively and prevent a serious financial decline?

Contact debt recovery specialists

Placing your credit control function in the hands of specialists can ultimately save you money. It also frees you up to focus on driving sales and providing exemplary customer service.

Chasing debts is a time-consuming process and uses up valuable resources the company may not be able to afford in the long-run. It has a negative effect in several ways, creating a financial shortfall because the money isn’t coming in, but also diverting and depleting working capital.

Debt collection agencies

Some businesses hand over their bad debts to a debt collection agency, but you need to take care to ensure the agency operates ethically. There are undoubtedly some unscrupulous operators in this field, so seeking recommendations from fellow business owners or financial experts is worthwhile.

Recover a proportion of a debt through full and final settlement

Your debtor may offer you a full and final settlement, which provides partial repayment of a bad debt. Depending on the situation this may be preferable to continued chasing of the monies owed.

Professional mediation can provide the degree of separation needed to reach an agreement with your debtor(s). It supports the negotiation process, and may lead to positive results when a bad debt threatens your business’ financial stability.

Mediation could lead to an offer of full and final settlement from your debtor, for example, which would help your business move on from a damaging situation if you decide to accept their proposal. Essentially, a full and final settlement means you receive a proportion of the debt, with the remainder being written off in the company’s books.

Court action for bad debt recovery

Taking court action to recover a bad debt is typically a last resort, after all other measures have been exhausted. It can be expensive to chase a bad debt through court process, and the debt needs to be sufficiently large to warrant taking this route.

You should ensure your debtor has no reason to dispute the debt before you begin bad debt recovery through the courts, and also that they are financially able to pay the money owed – they may already be bankrupt or insolvent, for example.

If you would like more information on bad debt recovery and the options available, please get in touch with our specialist team. Real Business Rescue is the UK’s leading business recovery practice. We offer free, same-day consultations and operate an extensive network of offices nationwide.

Keith Tully

Partner

0800 644 6080
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