As a small business owner, pursuing outstanding debts can be a painful process. You don’t want to be seen as the “bad guy”, but at the same time, you rely on debtors paying on time in order to service your own cash flow, and if a debtor defaults, your business suffers.

Unfortunately, the creditor who protests the loudest is likely to be paid first. This means if you want to see your money soon, you’ll need to get vocal with your debtor. In this article, we have a look at the small business debt recovery process and suggest ways you can make the debt collection process a little easier for all parties involved.

If you have a debt owing, and your usual debt recovery process (email reminder, follow-up phone call, compounding, etc) hasn’t resulted in payment, legally you have three tools in your arsenal you can employ.

Debt recovery tool one: send a lawyer’s letter

For a fee, your lawyer will draft up a letter outlining your debtors legal obligations and the repercussions of not paying the debt within a certain timeframe. Often, simply receiving a letter on a lawyer’s letterhead will be enough to convince a debtor to move your debt to their top priority. This can be a good first step as it is cheaper than engaging a lawyer for legal action.

Debt recovery tool two: use a debt-collection agency

You can assign small business debt collection to an agency. They will pursue the business on your behalf and attempt to recover your debt. This is a good option if communications between you and the debtor have broken down.

The agency will establish contact with your debtor via mail and telephone, and may also visit in person to collect on the debt. They will also register the default against your debtor, which will remain on their credit record for up to five years. Debt collection agencies settle the majority of claims without legal proceedings, but if required, can also act on your behalf to sue the debtor to recover money owing.

Debt recovery tool three: issue a statutory demand

If you suspect the company owing you money may be insolvent, and the debt is not in dispute, you can have your lawyer issue a statutory demand to recover your money. As we outline in our Statutory demands article, you may be able to recover the outstanding debt, interest owing on the debt, and legal costs associated with small business debt collection.

A statutory demand should ideally come from a lawyer you’ve hired, rather than from yourself or a debt collection agency. Once issued, the debtor has 15 days to pay the amount claimed. If they neglect to do this, you can apply to place their company into liquidation.

Seeking legal action for small business debt collection should not be taken lightly, and it’s important to ensure the debt is not in dispute before issuing a statutory demand.

If you are struggling to manage the debt in your company contact us now.