Consider your cashflow before you pursue debt collection

Before you consider debt collection, look at your company cashflow

As I'm sure you're aware, Talbots is a company that likes to get amongst its customers and work with the local community to make sure we're aware of the issues affecting everyone, including those building their business.

At one of our regular networking events, one of the team was talking to a bookkeeper. The subject of debt collection had been raised during the event, and several people were interested in knowing the best way of getting companies to cough up the money they owed.

The bookkeeper related a story that is probably more common than you'd think and one that should be a warning to anyone in business, no matter how big.

It all began when she was contacted by a builder who had been self-employed for three years and was finding it difficult. He thought he had been doing a great job. He was always busy and regularly put in extra work at the weekends, but he couldn't make ends meet. 

He often needed to pay for supplies for the next job on his credit card because the bank account was always out of cash, and he regretted ever thinking that running a business was a good idea.

The bookkeeper decided to help, and so she took away all of his books, spreadsheets, statements and receipts and got to work.

After a solid week of crawling through the paperwork, they met up in the local pub and discussed the problem.

It turned out he was owed over £30,000 from people he'd done work for.

That's right, thirty thousand pounds. Most of it was owed from jobs he'd done more than six months ago.

He was in equal parts shocked and delighted, and he realised he needed to get on to the job of sorting his paperwork out, and more urgently, chasing up that owed money.

It seemed his biggest problem was asking for money. He didn't like doing it, but he had to get himself in gear and sort it out, so he did.

One Monday, instead of going to his suppliers as he'd planned, he instead sat in front of the phone and started calling around some of the people who owed him. And it turned out to be easier than he thought.

Most of them had forgotten and were shocked that they'd not paid. However, they were apologetic and many paid straight away. At the end of that day, he checked his bank and found over 10k had already been credited to it. He was over the moon!

Since then, we've heard many stories like this, usually when people ask for debt collection services when in reality, they haven't kept on top of making sure they're on top of following up on debts.

It's fair to say that most people you work for aren't crooks, and they're willing to pay for the work you've done, but it's also a fact that in today's busy environment, people forget.

So how can you avoid this and make sure you get the money you're owed when it's due?

Use bookkeeping software

Even if you have a bookkeeper or an accountant, using software to handle your invoicing can pay for itself in no time at all.

Packages such as Sage and Xero will send invoices for you, but importantly, they'll schedule reminders, so you don't even have to remember to send a reminder.

They can be set so that if the money hasn't been paid into your account, they automatically send an email to the customer stating what they owe, how long it's been overdue and how they can pay it.

It often takes just one gentle reminder for you to get paid, and it saves an awful lot of hassle. 

Get a bookkeeper

If you're a sole trader who is focused on doing the work to earn the money in the first place, then it makes sense to get someone else to do the tedious (but essential) paperwork. 

They'll also be able to tell you, regularly, whether the work you're doing and the prices you're charging are working in your favour. There's no point in working hard every day only to find out you're not making enough money to pay even the essential bills. Also, if a job doesn't pay enough, you might need to make some hard decisions about what you do and how much you charge.

Send out invoices straight away

Some people are just too busy to do the essentials, and this is where a bookkeeper comes in, but if you don't have someone doing your books, then at least remember to send the invoices out when the job has been done.

Whatever work you do, get that invoice right out there as soon as it's completed.

Consider part payment/deposits

Many companies we deal with have this written into their DNA. They won't even start a job until the customer has paid a deposit, and then at clear milestones along the project timeline, they invoice another bit of the work.

This is a compelling way to ensure things get done and people get paid on time. It also means you're never out of pocket for items you might have to buy in.

You might feel it's difficult to ask a client to pay upfront, even a tiny part of it, but in many cases, you'll find they're absolutely fine with it, especially on extended jobs.

But what if it all goes wrong?

Of course, even with all of these methods in place, there's always going to be that one company that doesn't pay, and that's when it might be time to consider debt collection.

It's not something to go into lightly, and you should always take more advice before going ahead, but if you've exhausted all other avenues and have clients that won't pay, consider giving us a call to discuss your options.

Contact our experts for further advice