Debt Collection and invoices payment
Debt Collection and obtaining payment of your outstanding invoices
Reduction in business activity, casual management or financial difficulties, the reasons for a debtor not to pay his invoices on time vary. Without systematically resorting to legal proceedings, it is important not to remain passive when confronted to late payment of outstanding invoices.
Collecting outstanding invoices is not a pleasant task for any entrepreneur. It is sometimes easy to leave it for last, postpone making these difficult calls and writing these dry reminders, regardless of the importance of being on top of your cash management duties. But the older the debts get, the firmer the reminders will have to be when you finally get to send them, and the more difficult it will be to resolve the situation amicably, legal proceedings becoming the only remaining alternative.
Why do we need to be diligent when recovering unpaid invoices?
Firstly, when invoices get really old, they become statute-barred. Although the statute of limitation period in the UK is 6 years, it can be as little as 1 year in some sectors (international road transport), and is often just 2 or 3 years in many countries. After this time, creditors can no longer initiate legal proceedings. In this situation, if the debtor does not pay, you no longer have any legal recourse against them, and you can no longer obtain payment of your debt. It is therefore essential not to miss any step in collecting your invoices in order to ensure that they will be paid to you: do not miss this ultimate “pay-by” date.
Good to know: even when legal recourse is no longer possible, your debtor still has the option of settling you spontaneously. If he decides to pay you although the debt is time-barred and acknowledges the debt, he cannot then change his mind by invoking the time-limit.
What are the different stages of amicable debt recovery?
The amicable collection of an account consists of asking your debtor to pay the unpaid invoices. The point is simply to let him know that the invoices are due for payment and that you are expecting settlement promptly. At this point, it is important not to rush into hostile reminders, but rather to keep an open dialogue with your customer in order to reach a solution whilst maintaining a good business relationship. Failure to pay may be due to a misunderstanding or an oversight. In this case, a simple reminder letter should be sufficient to resolve the situation. However, if your letters or emails remain unanswered, it is then necessary to write a more formal notice. The formal notice should give your customer a last chance to settle the overdue amount amicably, while paving the way for escalation.
When and how to launch a formal recovery procedure?
If your formal notice has been ignored by your customer, you should strongly consider applying to the Court to obtain payment of your outstanding debt and filing an application (issuing a claim). If your customer still ignores this, you will promptly obtain a jugement against him and you will be able to take enforcement action. Collection procedures require good organisation on the part of the creditor, with some deadlines which cannot be missed. For many entrepreneurs who already find it difficult to chase their invoices in due course, it might be wiser to delegate such tasks to a professional debt collection agency and focus on their core business.