Debt Collection Protocol for Small Businesses
Debt Collection Protocol for Small Businesses
Businesses of all sizes will experience late or non-payment by their customers at least once.
It is an unfortunate reality that some firms experience this more regularly, resulting in the damaging to cash flow.
In particular, when a small business encounters financial difficulties, this can create a very stressful situation.
Not being paid for goods or services can create a domino effect, impacting other areas of the business.
For example, around 1 in 7 small business owners could not pay their employees due to cash flow issues.
When the stability of finances is weakened, this can threaten the longevity of any company.
It is clear that small businesses need a clear and effective process for when payments and invoices go unpaid.
When customers fail to pay money they rightfully owe, a pre-action protocol can be used to help recover the money.
We asked our experts to outline the key information for those looking to seek debt advice on pre-action protocols.
What is a pre-action protocol for debt claims?
The successful collection of late payments is often perceived to be a challenging task to undertake.
With this in mind, many business owners sadly choose to abandon the recovery of their debts.
The Pre-action Debt Recovery Protocol can be used as a solution to simplify the collection process.
It was introduced in October 2017 and was designed to help those needing to recover a debt from an individual.
Its main purpose is to resolve as many debt collection cases as possible without starting court action.
Commencing court action should be the last resort in any situation related to overdue payments.
It is worth noting that the protocol applies to non B2B transaction debts only; unless the debtor is a sole trader.
In essence, the Pre-Action Debt Collection Protocol aims to:
- encourage early communication with the debtor to outline the matter and exchange information related to the case.
- resolve any debt collection cases without needing to start court proceedings, including the action to discuss payment options.
- ensure relationships stay intact by both parties acting in a reasonable and professional manner.
The steps of the pre-action debt collection protocol
The debt collection protocol outlines how a creditor should approach the recovery, and how a debtor should respond to this.
In addition to this, breathing space regulations will need to be taken into consideration.
If a debtor chooses to comply with the protocol, this will help to amicably solve the case.
Failure to comply will result in further steps needing to be taken, such as legal action.
If legal action is needed, the court will expect the protocol actions to be carried out prior to this.
Contact the debtor
The first step in every protocol for debt collection is to contact the debtor to chase payment.
Communication to the debtor can be carried out in a number of ways, including letters, emails and phone calls.
You must maintain a professional manner in any contact you have with them, so as to not anger the debtor.
Any form of behaviour that one would see as negative or hostile could result in further withholding of payment.
Giving the debtor any further reason to do this is not a good situation to find yourself in.
Whilst communicating is known to be successful at producing a payment, this will fail on occasion.
Letters of Claim (Letter Before Action)
If the debtor ignores you, the next step is to send a letter before action (or letter of claim) to them.
The letter of claim formally requests payment with a deadline, or legal action will be carried out.
Details of any interest to pay on top of the amount already owed will be outlined in this also.
Included with the letter should be an Information Sheet, a Financial Statement and a Reply form.
If the debtor sends a partially completed reply form, you need to contact them to discuss the details of the form.
Despite how effective a pre-action protocol can be, some debtors may simply choose to ignore your letter of claim.
If this is the case, it is common for court proceedings to usually commence with 14 days’ notice to the debtor.
However, if this happens, there is an alternative solution that is far more beneficial for small business owners.
Instructing the services of a professional with expertise in recovering debts for small businesses is by far the best option.
Debt Collection Protocol vs Debt Recovery Agency
Every small business should keep an eye on its credit control methods, including the introduction of any debt collection protocols.
Although these protocols are designed to help small businesses recover money owed to them, there is another option available.
A private debt collection agency, such as Frontline Collections, is by far the most effective way of recovering money.
Our industry-low commission rates ensure a service that maximises success whilst minimising cost.
Small businesses will benefit from the affordable nature of this, whilst being provided with high success rates of 90% and above.
Our experts have specific experience recovering debts from small businesses, with knowledge of how to conduct each part of the protocol.
This results in an unrivalled, comprehensive debt collection service of the highest calibre.
If you have late payments or unpaid invoices, do not hesitate to get in contact with our debt collection specialists today.