Advice on Instructing a Debt Recovery Specialist

While there are smart ways to avoid the debt collection process, sometimes you have to hire a professional. After all, you have your business to run and dealing with delinquent accounts can be draining on your resources, time and patience.

That said, not every debt collection specialist is created equal and not every company will be right for your unique business. Here are a few things you should consider when selecting a partner in the process.

Do the Research

There are different areas of specialism in debt recovery for example, B2B debt, international and consumer related matters. Some, may for example, excel in securing funds from large companies while others do well working with SME’s or home businesses, and or consumer related matters. If at all possible, find out what sort of areas they most often deal with and what sort of business it serves.

Verify the Business Legitimacy

Different states and localities have different rules for debt collection, make sure the one you want to hire is established, licensed, and adhere to the regulatory requirements of Debt collection Practice.

Ask if they offer a Skip Tracing Service

Unfortunately, sometimes debtors skip town. To combat this practice, good collection specialists use what is known as “skip tracing” which means that they use and have access to several databases that allow them to locate a debtor who has left no forwarding address. This is especially important if you have been personally contacting your debtor and have been routinely ignored.

Make sure the Business you instruct has Insurance

No matter how much research you do, there’s always the possibility that a debt collection business uses aggressive tactics or that the debtor feels the agency acted in bad faith. In these instances, the debtor can sue. Get proof of insurance, in the unlikely event that your debtor takes you both to court, and that your own interests are protected.

Compare Fees and Contingency Costs

Once you’ve found a few collection specialists that might work for your business, its time to look into their costs. Here, it’s worth noting that the way in which they charge for their services can be very different and you should choose the one that is right for you. The pricing structure and process for B2B and Consumer debt types tends to vary.

Some common payment structures are as follows;

• Flat Fee: A straight forward cost usually associated with “pre-collection” fees and usually fairly small. This flat fee is generally offered early in the debt collection process, including early arrears management.
• Contingency: This is the most typical arrangement. Most businesses use a “No Collection – No Fee” model and can charge somewhere between 10% and 50% of the total collection, depending on the particulars of the accounts (such as how old it is, how many contacts have been made, volume, etc.).
• Standard Court Fees and Solicitors Costs will be the same across the board as these are regulated by the court, however disbursements can be charged independently by the business instructed to act and will vary.

Communications and Operational Processes

It is advantageous to understand how the business you choose to instruct will communicate with you and understand their operational process, set your expectations high at the beginning. How do they measure and monitor performance, reporting, billing, points of contact, what key performance indicators and service level agreements are in place, so you are clear about the quality of service you can expect to receive. An understanding of their company culture, ethics, should also be recognised.

Choosing a Debt Collection Service

Your customer has taken you to the end of your tether. They have used all the excuses in the book not to pay you and played for time at every turn, here are but a few of the usual suspects;

• The cheque is in the post
• We haven’t received the invoice
• Can’t pay you until my customers pay me
• The person you need to speak with is not available
• The invoice is in dispute
•  Our terms are 60 days/90 days/some period
• I haven’t been able to work due to illness
• There are no cheque signatories available
• We don’t have a payment run until next month
• Our systems are currently down

Enough is enough, it is important you get your money, but you have to focus on running the rest of your business too. It’s time to turn to a debt recovery specialist for help but what should you be looking for?

Can’t Pay? We’ll Take it Away

It is important that if you value your reputation and brand, you look for a professional approach. Continuing to do business with the customer may be important to your business so you have to be smart. Instructing a business that specialises in debt recovery need not destroy a client relationship, in fact bringing in a third party can remove emotional ties from the negotiation and leave relationships in better shape after the issue has been resolved.

Alignment of interests

Ask yourself how the company you are considering makes its fees, Are their interests aligned with yours?

There should be a number of available options presented to you the fee structure should be fully transparent. Due to the ever rising court fees, pre-legal collections are becoming more popular where a fee is only charged on successful recovery of your debt. Then you know the company you have chosen has exactly the same interests as you, with the aim to bring in the most money in the quickest time possible.

Check also that the company will give you the option to add Late Payment Act interest and fees on your B2B debt.  You now have a statutory right to charge a debtor for these.

It is also possible for the company to attempt to claim on your behalf any other fees that have been incurred in the process of the debt collection.  This is made easier if your terms and conditions state that all fees incurred are recoverable from the debtor. This is applicable to both B2B and consumer debt.

If these additional sums are successfully collected, the debtor will in effect be paying the company instructed and you may well be getting the service for nothing.

If you have to go legal then the ease of recovery of fees paid by you will depend on the level of the debt and the ‘track’ that the Court allocates the claim to.

End to End Process

It is important to check that the debt collection specialist you employ has the capability of taking your case all the way to court if a situation requires it. The reason for this is that the debtor needs to know, deep down, that this has become serious and they really need to deal with your outstanding payment.

If the polite insistence of your debt collection specialist is backed up with the credible threat of a court action, then you are more likely to get paid quickly and not need to end up in court at all.

You should also check if there is expertise available to resolve any problems, or disputes that may come out of the woodwork before court costs get out of hand.

Making the Best

It may well be that your customer has serious financial problems. In these cases it is important that the business you instruct can help you agree a repayment plan where the customer pays in instalments over a few months in line with their financial circumstances and treating customers fairly policy.

Article originally written by Hazel Wells, Business Development Manager for Commercial Recoveries at Spratt Endicott Solicitors.

Getting in touch

For more information on how a partnership with Spratt Endicott’s Commercial Recoveries department could benefit your business, please contact ​Richard Gwynne ​Director, Commercial Recoveries, on 01295 204087 or email ​rgwynne@se-solicitors.co.uk.

*Disclaimer: While everything has been done to ensure the accuracy of the contents of this article, it is a general guide only. It is not comprehensive and does not constitute legal advice. Specific legal advice should be sought in relation to the particular facts of a given situation.*