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Business debt soars despite Government Covid-19 support

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Businesses are finding it increasingly difficult to stay afloat as the Covid-19 pandemic continues to ravage the UK.

Despite several recent vaccine approvals and the government introducing a range of financial support schemes – including the Furlough Scheme, the Coronavirus Business Interruption Scheme and the Bounce Back Loan Scheme – lockdown restrictions in the first part of the year have put many businesses in dire financial situations.

In January, the BDO Output Index – which measures business output – fell to its lowest level in 15 years. Many businesses report that, even once coronavirus restrictions have lifted, it will take them at least a year (and likely longer) to return to normal production levels.

Accountancy Firm, EY, also recently reported that British businesses have taken on debt at twice the normal average growth rate since the Covid-19 pandemic began. Much of this debt is to survive rather than grow.

In the midst of this chaos, it is becoming more critical than ever for businesses to focus on cash flow and ensure that money travelling in and out of the business does not falter.

However, the difficulty is that clients and customers may also be less likely to be able to pay their debts on time.

What can businesses do to stay on top unpaid debts?

If your business is concerned about missed payment deadlines causing a knock-on effect to your business, what can you do?

Since it is not possible to control all the factors that lead to late payments, the key is having a strong foundation of robust payment terms and conditions backed up by a practical credit control procedure.

Taking proactive steps to discuss debt with customers, suppliers or other debtors early on could not only help you avoid prolonged debt issues, it could also help you preserve vital commercial relationships, allowing you to do more business in the future.

However, where debt does become an issue between you and an individual or business, consulting a specialist debt recovery lawyer and taking legal action may be the best solution to protect your business’s interests.

Putting in place robust payment terms and conditions

Putting your business’s payment terms and conditions in writing is critical to make the relationship between creditor and debtor as clear and unambiguous as possible. Set out

firm deadlines for payment and details of any interest that will start to accrue upon late payment. Other terms that could reduce the risk of disputes arising include:

  • Termination clauses (for example, whether a customer has a right to cancel and when).
  • How long a quote to provide work is valid for.
  • Other responsibilities, such as work specification, use of sub-contractors etc (this can help resolve disputes over matters such as quality of work).
  • Limitation of liability clauses (again, to help limit the scope of any refusal to repay due to matters such as quality of work).
  • Methods of dispute resolution to help you sort out any disputes over payment or the products/services provided amicably.

Strengthen credit control procedures

Put in place a solid credit control procedure to handle payments, including:

  • Issue invoices at the same time as the goods or services. This puts payment in the customer/client’s mind from the moment they receive the benefits of your work.
  • Make invoices easy to pay and provide multiple payment methods to avoid excuses.
  • Deal with any enquiries regarding invoices promptly to allow the customer/client as much time as possible to pay.
  • Incentivise early payment if possible, such as offering a discount on their next order if payment is received before the deadline.
  • Follow the invoice up before the repayment deadline passes to check when the payment will be received.
  • Chase up late payments in writing as well as over the phone. 

Consult a specialist debt recovery firm of solicitors

If it becomes clear that the debt is becoming problematic (for example, the debtor claims they cannot pay or simply stops responding) or a dispute is arising over the debt, it is beneficial to speak to a specialist solicitor for advice.

In many cases, a letter from a solicitor is all it takes to get a debtor to engage in meaningful repayment discussions.

Your debt recovery lawyer can also talk you through all your options and help you take steps to recover the debt through the courts as swiftly and cost effectively as possible.

Need expert debt recovery advice?

Our expert business lawyers specialise in supporting businesses through challenging times.

We provide a fast, effective debt recovery service to cover all your needs. Our debt recovery letter service has a success rate of 85%, allowing our clients to recover their money and get on with their business with minimal fuss. We offer fixed fees for many aspects of our service, so you can always be certain about costs.

We also offer bespoke credit control advice and have years of experience reviewing businesses’ credit control procedures and helping them implement effective methods of dealing with late payments internally.

For more information, visit our Debt Recovery Services page or give us a call at your local branch in Alconbury, Peterborough, Spalding , Birmingham or Nottingham to speak with a member of our team.