If a small enterprise has done jobs or supplied goods for a larger enterprise and has then sent the invoice for the jobs or goods but after the required waiting delay the larger enterprise has still not paid the invoice, what risks are there for going straight to Debt collection?

If the small enterprise went to a solicitor or to a Debt collection agency or then again if they bought Debt collection software to do the Debt collection themselves, one way or another, the larger enterprise would, at some point, receive Debt collection letters. This might well make the larger enterprise feel that the small enterprise didn’t understand why the invoice hadn’t been paid on time and were not concerned about the reasons why.

Apart from the major risk of the larger enterprise deciding not to use that particular small enterprise in the future, the other business risk is that the small enterprise might well be known as one that doesn’t talk to other enterprises when an account problem emerges and simply goes right into Debt collection. A further risk awaits if the small enterprise choose to use Debt collection software and doesn’t read tutorials or use the help or even read the user guide to understand the legalities of Debt collection as well as how to best create Debt collection letters. The risk here is that if the small enterprise eventually wants to take the large enterprise to court then they must demonstrate evidence of having attempted to get the large enterprise to pay the invoice and failed. If they just send out Debt collection letters without getting in touch with the large enterprise beforehand, this might not be acceptable as sufficient for a court.

Their best next step would be to first examine the contract for a late payment paragraph and if present, follow this procedure. If there isn’t such a paragraph then they have legal rights to charge interest on the unpaid debt as well as a one-off charge for Debt collection work. In this case they should communicate with the large enterprise and understand their reasons for not settling the invoice, as it might be a simple mistake on their part which they might well sort out right away. On the other hand it might be that they are somehow unable to pay the invoice and they might have cash flow difficulties themselves because of uncleared bills of their own and so might ask for an extension to the final payment date. These reasons might well be satisfactory for the small enterprise, as they will hope that they can get more jobs from the large enterprise, as the payment problems might be short lived. If however they aren’t given a acceptable reason for non payment, then they might feel the need to take it further and start off the Debt collection activity.

If they opt to use either a solicitor who has Debt collection experience or a Debt collection agency then they might find that the fees for these services amounts to a significant proportion of the debt itself and if they know of these figures they might well examine the Debt collection software option as a way of carrying out the Debt collection themselves. In this context, as mentioned earlier, the small enterprise would be well advised to study the user guide that should be included with the Debt collection software so that they both know about the Debt collection activity and how to create good Debt collection letters. The Debt collection software should include either an internal database or a way of linking to an existing database application so that all happenings that are taken are recorded and date stamped. Activities such as writing and sending out Debt collection letters, recording the arrival of post or emails from the larger enterprise and phone calls should all be registered as part of the work being done for the Debt collection activity and should be valid if the case comes to court.

Posted in Finance ~ No Comments