According to the latest figures, SMEs in the UK are owed more than £61 billion in unpaid invoices as of March 2021.
Unfortunately, given the time and money needed to chase payments on unpaid invoices, small businesses in the UK write off more than £780,000 per day in bad debt.
Having to write off these huge sums puts a huge strain on both small businesses and their owners, threatening their growth and even their solvency.
But what can be done to resolve this untenable situation?
As we all know this money cannot be replaced by simply waiting until customers pay their debts, which is why it's important to make sure you take a proactive stance to resolve unpaid invoices without simply writing them off.
In this blog post, we will give 5 tips on how you can avoid writing off your bad debt.
1. Always include a credit check as part of your onboarding process
Credit checking new customers provides a solid foundation for your credit control efforts. It can help flag up any potential bad debtors before they become a problem and also provide some indication of how likely it is that a customer will pay their invoice.
Conducting a credit check is usually more reliable than simply listening to what they tell you about themselves and how financially stable their business currently is. With Chaser's credit check feature you can at all times quickly and confidently verify any customer or supplier, ensuring that they are financially stable and trustworthy before entering into any business agreement.
It's important to understand that credit checking isn't a 'one and done' process. Your customer's financial status will change over time, so it's important to check how likely a customer is to pay their debts on an ongoing basis by conducting regular credit checks.
2. Make sure your payment terms are clear and concise
You are much more likely to get paid in a timely manner if you and your customer are on the same page about when and how payment is to be made. The best way to ensure this is to have clear payment terms in place with your customer.
If you're struggling with writing your own payment terms, we've done a deep dive into how to do that and created a credit control and debt collection policy template you can use.
One of the most common causes of non-payment is an unresolved dispute over the terms and conditions of a sale. However, you might not even become aware of this until an invoice becomes overdue.
The best way to avoid this is to make sure your terms and conditions of sale are clearly stated in your onboarding agreement and that your customer agrees to them as part of their onboarding.
You can even follow up on an invoice with a courtesy call to make sure the customer is aware of both your payment and sales terms.
Above all, don’t let a dispute over terms spiral into a bigger problem by becoming confrontational or aggressive. This will just add fuel to the fire and increase tensions between you both.
Be professional at all times, assertively state how much is owed but be open
3. Open a line of communication
Negotiating the payment of overdue invoices can be a difficult situation for both parties involved. However, it's important to at least open a line of communication with your customers in order to try and resolve the situation.
Oftentimes, businesses will simply write off an invoice if they haven't heard back from the customer after a certain amount of time. Instead of losing out on that money, contact the customer and find out what the issue is.
Adding a little flexibility to the situation by offering, for example, a payment plan to help your customer get back in the black can go a long way.
Most businesses and business owners don't want to be behind on their payments and offering them a structured way to get out of that situation is an excellent alternative to simply writing off the money owed.
4. "Escalate" your payment requests
If payment enquiries aren't getting the kind of response that you were hoping for, then it might be time to escalate them up to the C-suite.
Having a more senior person in your company send out a payment request email can sometimes be enough to push the customer to pay.
Instead of appearing to come from a financial assistant, an email from the director of finance or even your CEO can occasionally get you the results you need.
It goes without saying that all communication should remain polite and professional, even when it is sent from someone higher up the food chain than you. However, there is no harm in being persistent and to the point. You are owed the money in question and it's the customer's responsibility to pay the balance down.
You can also send invoices that represent how much money your company loses for every day a payment is late. This can be a powerful tool as it helps customers understand how much money you are potentially losing by them not paying on time.
5. Use the right collections agency
If none of the above is working it might be time to get a professional collections agency involved.
However, you have to make sure that the agency is reputable and are using the right kind of tactics to recover your money. The last thing you want is for it all to go badly with your customers because of poor communication between yourself and a collections agency.
One of the reasons small businesses write off debt instead of using a collections agency is because they don't want to damage their relationship with the customer. But, if you're using a reputable agency then it shouldn't be a problem.
Reputable collection specialists like Chaser Collections use mediation and persistence as their primary tools, which means that they don't rely on threatening letters, making phone calls or sending emails to get results.
In addition to this, companies like Chaser work with the customer's best interests in mind and want them to repay their debt because it helps both parties involved.
How Chaser can help you avoid writing off bad debt
While all of the tips above can help you avoid having to write off bad debt, they do require a certain amount of time and effort to implement and time, for small business owners is very definitely money.
In fact, UK businesses waste 56.4 million hours a year chasing late payments.
However, Chaser can help you recover unpaid invoices without needing to devote huge amounts of resources to credit control. With Chaser's automated features you can get on with running your business while we take care of collecting the money you're owed.
Through the Chaser platform, you can:
- Implement a credit control system - Chaser offers credit checks for new customers and a full suite of payment analytics to show you how the payment behaviour of your customer changes over time. You also have access to detailed reports about how much money is owed to you and how long it has been overdue
- Send automatic reminders and statements - Instead of spending hundreds of hours chasing late payments manually, you can set up reminders and statements to be automatically sent to customers who owe you money. This will help you keep on top of your debtors and all reminders will seem to come directly from you, or someone else in the company if you choose to escalate the payment request.
- Negotiate payment plans - Chaser allows you to create custom payment plans for any customer who owes you money. This can be done on an invoice-by-invoice basis or for all overdue invoices at once. Payment plans give your customers the opportunity to clear their debt over a period of time, without having to pay interest or late payment fees.
- Use a debt collection agency - In addition to a market-leading credit control platform, Chaser offers professional debt collection services with a focus on maintaining a good relationship with your customers. Our debt collection services use mediation to find the best possible solution for all parties involved and mean you don't have to write off bad debt.
If you're looking to avoid writing off bad debt, why not try Chaser free for 14 days? You can be recovering invoices in no time at all.
