Business failure figures put spotlight on effective debt collection

With the latest figures1 from the Government’s Insolvency Service showing a 56 per cent increase in company liquidations compared to last year, successful debt collection procedures have raced up the business survival agenda. Debt recovery specialist Martin Hughes of Spratt Endicott Solicitors, says many businesses are still not getting the basics right.

Martin, who has developed a dedicated commercial recoveries department at the solicitors firm, says that by implementing some key internal training techniques with in-house credit teams, most businesses can save themselves a fortune in time and unrecovered debt.

He explains: “Debt collection is becoming a bigger problem by the day and the latest Government figures are a stark reminder of what happens when cash dries up. Worryingly, many in-house credit teams do not have the necessary awareness and understanding of their terms and conditions of trading, and are therefore not in a confident position to recover, in the best way possible, the debts that are owed to them.

“It’s astounding how many businesses have terms and conditions drafted at some expense, but do not ensure that their front line credit controllers are aware of them or understand them. The knock on effect of this is that processes are lengthened, recovery rates are reduced, and debts are left to build.”

Martin advises that the most obvious term to be aware of is the credit period allowed. However, other terms can be extremely useful tools to aid recovery of payments:

1. A late payment interest clause which will aid negotiations with debtors
   
2. An ‘all monies retention of title’ clause, not only in the case of insolvency, but where collectors can consider using this to best effect with the end customer
   
3. A period given for notification of queries - for example, you may only retain proof of delivery (POD) information for three months, but it is not uncommon for debtors to ask for POD outside of this time period where matters have been allowed to drift
   
4. A limitation of liability clause which can be successfully argued at an early stage where a customer attempts to offset an amount greater than the value of your product against other invoices
   
5. All outstanding invoices become due if any invoice is overdue

Martin continues: “More than ever, it’s essential to a business’s livelihood that debts are recovered as simply and quickly as possible. A good knowledge of your company’s terms of trading can resolve potential areas of dispute, and can prevent a debt from becoming seriously overdue.

“It may also have the added benefit of keeping a customer’s good will where it can be shown that they have agreed to your terms and conditions.”