How to collect business debts promptly

David Kirk outlines the three key tools for successful and timely debt collection.

three concerned office workersWhenever a large construction company goes into administration or liquidation, there will be a huge knock-on effect on the smaller companies that supply that business.

Quite often, we end up dealing with a client insolvency that’s resulted from taking a loss from a very large bad debt that can’t be recovered. It’s certainly common in the construction sector –we have dealt with two construction businesses this year due to this domino effect.

But could this have been avoided? Certainly, the position of the companies that were owed the money could have been improved by better debt collection.

We are often in the position of collecting in debts post-liquidation for a company, and are used to hearing every excuse as to why the invoice won’t be paid by the end customer.

So, we have learned the hard way that there are three parts to debt collection.

Make clear payment terms

The first part is agreeing the price with the customer and making them agree to clear and prompt payment terms.

In our experience, the older the debt, the harder it is to collect – partly because people have forgotten, and the message the customer gets is that no one was interested in collecting it.

Gather all paperwork for the debt

The second part is having all the right paperwork to back up the debt. It's likely that the customer will ask for a copy of the invoice, the original order form, and proof of goods delivery (if it was an item, rather than a service).

Therefore, it's very important to keep full records of any sales with any corresponding email and telephone notes about the order. The backup documentation can include the original quotes, signed terms of business or an engagement letter, a purchase order, a delivery order and the detailed invoice. The more evidence that the customer wanted it, agreed the price, and then had the order fulfilled, the better.

It is good practice to review your aged debts once a week – most software will print a report showing debts by age. Review it and chase those that should have paid by now. You can even remind customers of due dates before the debt is finally due.

We make sure that for any insolvency we are appointed to we collect all the paperwork and get a software backup, so that we have everything we need to collect in the debts.

Show tenacity in debt collection

The third important part of debt collection is having the right person collecting the debt for you. They must be firm yet polite, and be equipped to deal with a difficult customer who may be making excuses as to why the bill won’t be paid.

The other key to the right person collecting the debt is they must be organised and persistent. They must regularly chase the debt, so the customer is not allowed to forget. A calendar reminder of when to collect debts is key.

Factoring companies are very good at debt collection. They make sure that the customer agrees the amount that has been invoiced even before it is due, so that when they ask for payment on the due date, the excuses for non-payment are limited.

About the author

David Kirk is a chartered accountant and licensed insolvency practitioner based in the south west. Follow @kirksinsolvency, or visit