Look After Your Business with Best Practice Debt Recovery

Having a robust and efficient credit control system is crucial in keeping debts to a minimum. When looking at debt recovery, it is good practice to have an experienced credit controller, or where perhaps that is an unaffordable expense, an internal “point of contact” who deals with debtors is a good place to start.

Below we have compiled some helpful hints on best practices for nurseries to deal with clients that have not paid. In addition, steps to take to ensure any necessary legal action will have the best chance of succeeding if you need to recover the debt via court.

Written Agreements

Quite often, especially with SME businesses, one of the difficulties in recovering debt can be the lack of a written agreement or contract in place between the parties.

If legal action proves inevitable, a written agreement can strengthen your claim against the debtor and make it more difficult for them to dispute the claim.

It is good practice to ensure the written agreement sets out the rights and obligations of the parties. Including the obligation of the customer to make payment, the sum of that payment and the right of the business to receive payment on a specific date each month.

Knowing your customers

It is important to know and understand your customers, particularly concerning their full “legal name” and financial status. It is important not to presume you know the individual’s full name is Jo Bloggs as they introduced themselves as Jo and their child who attends nursery is Child Bloggs. Ask the parents to complete a quick form to capture their legal name.

On the same form, you can also ask about their employment status and what they do. This information helps you understand if the debtor will have the means to pay any sum you are owed and/or costs awarded to you by the court. It also gives you an insight if there is a change in payment behaviour. It’s important to remember that employment status doesn’t necessarily have a bearing on whether debts will be paid, it gives insight into how to potentially pursue unpaid debts at a later date.

Communication is key for debt recovery

Very simply, keep in touch with your customers. An open line of communication with a debtor usually results in them being open about their financial status or the reason for a change in payment behaviour. Where payment in full may not be possible, good communication can assist your chances of seeking settlement over a period of time.

If you keep in contact by sending regular and polite reminders in writing, this may prompt them to pay you to prevent any further contact. If telephone conversations take place, keep a good and accurate log of what was discussed, including the time and date of the phone call. Then you should follow up in writing to the debtor outlining exactly what was discussed. This way, your processes will be more effective, and if legal action does become necessary, the court will be able to see the chronology of events and steps you have taken to pursue the outstanding sums. It is also more difficult for a debtor to later dispute a debt they have been promising to pay.

Act quickly when it comes to debt recovery

Quite often and especially in agreements or contracts for the provision of care services, such as nurseries, we see a common theme of the business acting very slowly in terminating the agreement with the debtor and allowing the debt to continue to accrue. This is often due to the fact you don’t want to stop caring for the debtors’ child or disrupt their education. Nurseries often hope the debtor will eventually somehow pay up.

If your attempts to reach an agreement have not been successful, then termination of the agreement in line with your contractual terms, might be the best option for your business. Experience shows the longer the debt continues to accrue, the less likely a debtor is to pay. If they are in financial difficulty, it is much more difficult for a debtor to pay £5,000 than to pay £1,000. You are more likely to receive the sums you are owed the sooner you act and pursue the debtor to settle their account.

Offer payment terms

If a debtor is suffering from financial troubles or they have had a temporary change in circumstance, offer payment terms. If you can be more flexible, open a line of negotiation with them to try to come to some sort of arrangement for payment to be made. This should be balanced against the risk of the debt increasing but is likely to be more acceptable, if the debtor has a short-term issue.

Final action

If payment continues to remain outstanding, and/or the debtor fails to engage with you. You will need to consider a final letter to the debtor informing them your standard practice is to pass the matter to a solicitor or debt recovery agent. These third parties will add interest and costs to the debt which can sometimes add more pressure for them to pay.

If no response is received to this letter and payment remains outstanding, then it is time to instruct solicitors or a debt recovery agent to pursue this matter further for you.

Is there an outstanding Debt Recovery or  Debtor Issue at the moment?

If you have any issues with outstanding debtors your insurance provider should be able to provide template letters to assist you to recoup the funds. If the letters don’t work you might need the help of a solicitor, again your insurance provider will be able to point you in the right direction. Often a letter from a solicitor is enough to encourage a payment plan to be put in place. If there is no response to the solicitors letter, you are permitted to take legal action. The first step is to issue County Court Proceedings. When you do this, the debtor will receive a court order requiring them to clear the debt within 14 days, either paying off all the debt or making an agreement to pay in instalments. If the debtor does not make payment or ignores the court order, a CCJ (County Court Judgement) is issued.

Show business, not show-friends

As a business owner myself, I understand the challenges that SMEs face when keeping on top of debtors as you have built a relationship with your customers. In the nursery sector, there are even more emotions involved, as you are educating and taking care of your customer’s children and you don’t want to disadvantage the child in any way.

We know you are a compassionate sector and it’s often difficult to take a strong stance. However, it is important to remember like any other business, your customers are required to pay you for the product or service they receive.