Protecting your business: Strategies to recover commercial debt

In today’s challenging economic climate, maintaining healthy cash flow has become more critical than ever for UK businesses. Late payments and outstanding debts not only strain operations but also threaten a business’s long-term sustainability.

Bibby’s Confidence Tracker for Q3 2024 said that in the past 12 months, 40 per cent of SMEs in the UK reported suffering bad debt due to customer non-payment, an increase from 30 per cent reported earlier in 2024.

Whether you are small to medium enterprise (SME) or a growing company, implementing effective debt recovery strategies is essential to protect your bottom line, particularly during difficult economic periods. Sara Beaumont, a commercial dispute resolution specialist and director at WHN, explores practical approaches to help businesses navigate debt recovery.

How to reduce the risk of late or non-payments

Late or missed payments can have a significant affect your business’s cash flow. Here are five effective strategies to help reduce the risk of debt and to encourage timely payments from your customers:

1. Implement strict credit policies: Establish clear credit terms and ensure the terms are communicated effectively to all customers. This includes setting credit limits and payment terms that are realistic and enforceable. Clear credit terms and communication will also be important should any future legal action be required.

2. Conduct credit checks first: Before extending credit, perform thorough credit checks on potential customers to assess their financial stability and payment history.

3. Invoice promptly and accurately: Send invoices as soon as the service or product is delivered. Ensure invoices are clear, detailed, and free of errors to avoid disputes. Remind customers on invoices and statements of their obligation to pay any interest incurred on an outstanding debt.

4. Offer incentives for early payment: Provide discounts or other incentives for clients who pay their invoices early. This can encourage timely payments and improve cash flow.

5. Regular follow-ups: Implement a system for regular follow-ups on outstanding invoices.

Effective steps for debt recovery in difficult times

Approaching debt collection in a professional yet flexible way is vital in ensuring the best possible chance of receiving owed monies from your customers.

It is important to remember that you are expecting payment for a product or service that you have satisfactorily delivered to meet customer expectations. Ensuring that you deliver high quality products, and/or a consistent professional service, will help reduce the risk of payment disputes with customers.

Also consider that despite your own credit terms, different customers may have their own payment terms, for example governing bodies or contractors may have a longer payment period. These need to be taken into consideration.

Here are the four key steps to take to recoup outstanding payments:

1. Utilise technology: Leverage automation tools to streamline the debt collection process. These tools can help track overdue accounts and send automated reminders.

2. Flexible payment plans: Offer flexible payment options to accommodate clients facing financial difficulties. This can include instalment plans or extended payment terms.

3. Engage specialist debt recovery solicitors: When internal efforts fail, consider hiring specialist debt recovery solicitors. WHN has the expertise and resources to recover debts more effectively. Our team can provide legal advice tailored to your specific situation.

4. Legal action: Pursue legal action to recover outstanding debts. Ensure you have all necessary documentation and follow legal procedures to avoid complications.

Preserving customer relationships

When it comes to debt collection, maintaining positive client relationships is critical. The four strategies below help ensure respectful, effective communication while supporting repayment and long-term trust:

Open communication: Maintain transparent and consistent communication with clients. Address any concerns promptly and professionally.
Adopt a personal approach: Treat each client as an individual. Understand their specific needs and tailor your approach accordingly.
Empathy and understanding: Show empathy towards clients facing financial difficulties. Offer solutions that can help them manage their payments without feeling pressured.
Feedback mechanisms: Regularly seek feedback from customers to understand their experience and identify areas for improvement. This can help build trust and loyalty.

What if a customer realistically cannot pay the debt?

Sometimes, despite best efforts, a customer may genuinely be unable to pay their debt. In these situations, it is important to approach the matter with understanding while still seeking a fair solution.

Below are some thoughtful approaches for handling such circumstances:

Assess the situation: Understand the reasons behind the customer’s inability to pay. This can help you determine the best course of action.
Negotiate a settlement: Consider negotiating a settlement that allows the customers to pay a reduced amount. This can be beneficial for both parties and help recover at least part of the debt.
Payment plans: Offer structured payment plans that spread the debt over a longer period. This can make it easier for the customers to manage their payments.
Write-offs: In cases where recovery is unlikely, consider writing off the debt. This can help you focus on more recoverable accounts and reduce the administrative and costly burden of chasing the debt.

Finding a solution that suits your business and customers

By working with WHN’s debt recovery team, businesses can confidently navigate the complexities of debt collection, ensuring strong financial health and operational resilience.

Led by Sara Beaumont, an expert in commercial debt recovery, the team at WHN provides comprehensive advice on all aspects of debt recovery, including internal credit control, pre-issue debt collection, court action, and enforcement.

Sara also specialises in resolving commercial disputes across various levels, with extensive experience in alternative dispute resolution, particularly mediation. She handles a wide range of contractual disputes involving suppliers, customers, and professional advisers.