Many people have been in a situation where they are owed money. This may be from a friend or family member, or a customer that has not paid their bills.
In any case involving money that is owed to you, it is important to recover the amount as quickly as possible. As well as this, it is important to maintain a good relationship with the debtor. This is especially true for businesses as if a client relationship is jeopardised your company will not be able to profit from future opportunities with that customer.
A recent study from the UK showed that one in ten businesses have waited for more than one year for an invoice to be paid. Many small business owners were forced to sell off their property or get a bank loan just to make ends meet during the last few years. This number will only have increased throughout the Covid-19 pandemic.
Knowing what to do when you need debt collecting can make the difference between a good or bad outcome. As with any financial affair, there are many solutions to this issue, and choosing a poor course of action can cause a lot of problems.
It is important to carefully consider your options before choosing a specific method of debt collection. There are many factors to consider, and you should bear in mind that each case of debt collection is unique. As such, the best solution for you will very much depend on the circumstances surrounding the money that you are owed.
Hiring a Debt Collection Agency
Instructing a professional debt collection agency has become more of a popular course of action in the last 20 years. A debt collection agency offers a fully comprehensive service that allows either businesses or private individuals to recover money that is owed to them.
On average, the costs of a debt collection agency are drastically lower than that of alternative solutions such as court action. They also provide the means to recover as much of the debt as possible.
Many debt collection agencies specialise in particular areas of debt. For example, businesses may need a commercial debt collection agency to recover money that is owed from another company. In the UK, Federal Management is known as the leading agency in this field, and so would be a good choice.
It is equally likely that private individuals would need a debt recovering, and in cases like this Frontline Collections would be a good choice. They are the leaders in private debt collection and also help small businesses recover money owed to them.
Using a debt collection agency is a proactive and effective way of recovering money owed, but an agency is required to charge for its services as any other business would. Even though the cost is lower than alternative options, you should still be mindful of this when making a decision.
Money Claim Online
One of the ways in which people can claim debt collection is by using the money online service. This is only for debts that are under £200,000 and is ran by HMCS. This is a useful tool and can help small businesses and those that are self-employed, but bear in mind that legal costs must be paid to use it.
Speaking with the Debtor
In many cases, it is good to speak with the debtor before taking any action. Having a professional conversation can often remind debtors that their payment is due, prompting them to pay. If your debtor is struggling to pay a debt, having a conversation can help them explain their situation to you.
In any case, speaking with the debtor can often shed some clarity on why your debtor has not paid and can help to arrange a solution in a way that is acceptable to all parties.
Arbitration and Negotiation
If a debtor is disputing a payment, it can be worth trying to resolve the matter outside of the courts. Using a third party to mediate an arrangement can help to recover money that is owed, as well as ensuring that business relationships are maintained. However, this may not recover the full amount that you are owed and still comes at a cost.
Historically it has been common for people to take matters of debt collection to a small claims court. This can be an effective way to recover a debt, and often just the implication that court action will be taken is enough to prompt payment.
Whilst this can be a good step to take in certain circumstances, it is a very costly course of action. Court fees can mount up and this cost can sometimes equal the value of the debt itself. When this happens, many people choose to write off the debt and are left with legal fees to pay. This high cost can also mean that it is not cost-effective for smaller debts to be collected.
Legal action can be an effective way to recover a debt, however, anyone choosing to do this should consider the costs before committing to a course of action.