For any commercial company, operating a business can come with many challenges and unexpected events. These can sometimes be financially beneficial, or they can be a nightmare, with COVID-19 being a prime example of this.
So what is commercial debt recovery, and how can it be used for companies who may require it? You’ll get all the information required to help make your own informed decision on this type of financial aid, should you ever need it.
What is Commercial Debt Recovery?
It is often referred to as business debt collection. It’s a service that can help businesses to reclaim any unpaid invoices. This, for a lot of businesses, can be time-consuming to do for themselves.
However, a first step should be looking into a filing a County court judgments for debt (CCJ) for non-payment. T
hen you may wish to continue with commercial debt recovery.
A debt collection agency is usually required to help chase down the invoices that haven’t been paid so that there’s minimal damage to the company’s cash flow health.
If you’re a business owner encountering this problem, then you’re certainly not alone. In fact, the percentage of firms making invoice payments online fell to 41.5% in the UK in 2021.
It means that if you’re worried about money for your business, then action through a debt collection agency is worth taking.
How Does Commercial Debt Recovery Work?
When you have commercial debt owed to you, then you can use services to collect owed money.
The agency or service, in particular, will do this for you on your behalf, and typically, they’ll be used where the client has ignored invoice payment reminders. This is usually within 90-120 days of the expired invoice terms set.
The Commercial Debt Recovery Process Explained
The process of the debt recovery service is fairly simple. You hire the debt collection agency to approach the specific clients, and there will typically be one of three outcomes that you can expect. These are:
- The debt is paid immediately by the client.
- The client paying the debt requires a payment plan.
- Legal action is taken against the client for refusal or ignoring payment.
A debt collection agency is there to lighten the load when it comes to chasing up clients who have delayed payment without a good reason.
Types of Commercial Debt Recovery Services
There are different types of commercial debt recovery services available depending on your business. When it comes to unpaid invoices, small companies or SME’s may require more assistance than those in large corporations.
It could be just the one outstanding invoice, or you may have multiple unpaid invoices that need addressing. For multiple debt recovery, it can be helpful to improve your cash flow in the future.
What types of services are offered to collect debts owed?
Single debt recovery – Helps a business recover the odd outstanding debt here and there.
Multiple debt recovery – Provides assistance to businesses with a regular amount of overdue invoices.
Credit control – Assists in supporting the management of company credit in general.
Debit tracing services – Located the customers that are indebted to your business.
The Advantages of Using a Commercial Debt Recovery Agency
There are many advantages to using a commercial debt recovery process through a third party. Above all else, it can relieve some of the stress and frustrations that can come from trying to chase clients for payments. A threat of a debt collection agency is often all that’s required. Some other advantages include:
- A quicker way to recover any outstanding debts.
- You get access to a team of debt collection experts.
- It’s cost-effective in its ability to collect payments on debts.
- There’s a higher chance of keeping your relationships with clients.
- Helps better your cash flow and credit control.
What Are the Risks of Using a Commercial Debt Recovery Agency?
There will always be risks to using services like these, especially when it comes to ruining the relationship with your client. It can often be that those needing the payment to be made are asking too soon, and it could anger the client from working with you again.
Some debt collectors aren’t the best at their approach in ensuring payment is made. Legal action could be taken against you, especially if the client isn’t happy.
There are other options you can take if you feel a commercial debt recovery agency is a step too far. Invoice finance, for example, can help release money on outstanding payments, which you can pay back once the client has paid.
When Should I Consider Using a Commercial Debt Recovery Agency?
How do you know if a business debt collection is required for you particularly? There are certain scenarios in which a debt collection is warranted.
It’s important that, whilst it might seem overly intrusive, at the end of the day, it’s money you rightfully deserve for the work you’ve done. Here are a few considerations that might influence you to use the services of a debt recovery service.
- The invoice is overdue by a considerable amount of time.
- No response from the client or customers.
- The customer is disputing the invoice for any number of reasons.
- You lack the internal resources to chase the payments.
- There are complex commercial disputes that require the assistance of a third party.
If any of the above apply to your business, then it’s most likely that you’ll need assistance in getting these payments made. Even just one of these scenarios panning out is enough for you to put your foot down and get the expert help that you need to help collect these commercial debts.
What Are the Costs of Commercial Debt Recovery?
Every commercial debt recovery agency can work a little differently from the next. So the cost of a business debt collection is priced usually on the percentage of the debt that’s being collected.
Some debt collectors will work on a ‘no win, no fee basis‘, which might be helpful for you if you don’t want to lose out further financially.
It’s always important to do your research on debt recovery agencies; otherwise, you can end up paying out more than you expected. Be sure to explore the market of agencies available and what they offer as services. You may find the legal proceedings with their involvement are more costly.
There will be different costs depending on the level of work that you have. You may be required to pay for every individual debt recovery situation, whereas others may offer you a bulk deal.
When looking for the best debt collection agency, be sure to take a good look at their cost breakdown. They may also have hidden fees or charges that you weren’t expecting. This can also be a hard pill to swallow when you’ve not necessarily done anything to warrant the late payment initially.
How Long Does Commercial Debt Recovery Take?
For unpaid invoices, you want these to be paid as quickly as possible. With that in mind, how long is typically the norm for commercial debt collection?
All collectors are trained and skilled negotiators that often use a ‘soft-touch‘ approach. The reason for this is that the topic of debt is delicate for a lot of people, and to be thrust this accusation of debt in their face can have a negative reaction.
You can expect commercial debt collection to take a few weeks. This is dependent on how easy the client is with their interactions through the agency.
In the instance of the payment not being made in one go, the commercial debt collection agency involved may suggest a payment plan. This can be put in place and done over a certain number of months until the debt is paid off.
Again, every agency is different, so some may take longer than others when it comes to getting your money back. How long it takes will also depend on the severity of the invoice amount or the sheer volume of invoices required for repayment.
What is the ‘No Win, No Fee’ Agreement?
A ‘no win, no fee’ agreement is something you’ll likely see mentioned in various industries from the legal market but also in situations where you’re selling your property. It basically stipulates that in order for them to receive a fee, they need to acquire payment or fulfil the objective that you desire.
In the case of debt collection, the debt collection agency won’t charge you until they successfully manage to retrieve the funds you are expecting. This is important for most businesses because the last thing they want is not to get any further and still be required to pay the agency in question.
With business debt recovery, always check if the agency offers a ‘no win, no fee’ agreement. If they don’t, then you might want to look elsewhere. This type of agreement is going to help you out the most when it comes to getting your money back fairly and successfully.
Make sure to read the small print for these payment models as you want to check what this means in terms of any additional charges like admin fees, which can sometimes not be covered in this agreement.
Can I Get My Money Back from a Dissolved Company?
Whether the company you’re claiming money back from is dissolved or not, these debts still need to be repaid in some way or another.
If a company has dissolved since you sent them an invoice for your work, then the company still owes that money. In this case, a court order is usually required in order to restore the company. It’s good to follow up with this as some companies may write this off for simply the effort it often takes to get money from dissolved companies.
Again, business debt recovery is helpful in this situation where you require extra assistance in getting your money back.
Final Thoughts
Business debt is no laughing matter and should be taken seriously to ensure it doesn’t happen repeatedly. There are instances where debt recovery might not be required and is a one-off blip in the client’s system. However, if it’s happening again and again, it’s not going to be helpful to ignore it or allow it to happen.
With plenty of debt collection experts and agencies out there, it’s worth exploring this as an option if you’re having problems collecting invoices that have yet to be paid.
FAQs
How does debt collection differ from debt recovery?
These terms are both very similar. Each refers to the collection of money. However, for debt collection, you’d typically be chasing the payment yourself. For debt recovery, you’ll usually instruct the help of a third party to collect it on your behalf.
Is it possible to charge interest and recover my commercial debt recovery costs?
When a payment is late, you may be able to charge interest, especially if you’ve written it in the terms of the invoice. If you agree on a payment date, it’s usually within 30 days or 60 days, depending on public authority or business transactions.
Are commercial debt recovery companies regulated?
These companies aren’t typically regulated as there’s no regulatory body to oversee these agencies or services. However, all commercial debt recovery agencies should follow guidelines when dealing with these cases.
What is the limitation period?
The time limit on these debts is six years since you wrote to them or made a payment. The time limit is longer for those who have mortgage debts.