Why Commercial Debt Recovery works for struggling businesses

With a record number of businesses in financial distress, there is no better time than early in the year to challenge commercial debt, unpaid invoices, and overdue payments.

Commercial debt recovery is a crucial aspect of maintaining financial stability for many small businesses and sometimes a little help is needed. Managing cash flow is paramount for sustained business success in 2024 ahead of the end of the financial year, but overdue payments can significantly impact a company's financial health.

For the second successive quarter, the volume of businesses struggling has risen by around 25%, with interest rates and inflation pushing many to the brink, but often it can be commercial debt that is the final straw.

The North West is well known as a pocket of late payment when it comes to B2B for companies, and this can have a knock-on effect on the supply chain and the sustainability of small businesses.

However, with the right approach and some simple effective, and low-cost actions commercial debt can be recovered, said Chartered Legal Executive, Leigh Sunter.

“For whatever reason if a company has not paid up it can affect your cash flow and you are entitled to do something about it.”

“Most debts only require a couple of straightforward processes from your solicitor to prompt payment. These can be a straightforward “letter before action” on your behalf to the debtor; or failing that, a notice of intended court proceedings in the Small Claims Court; and in my experience that usually prompts debtors into payment,” added Leigh.

Understanding Commercial Debt

Commercial debt refers to the money owed by one business to another for goods or services provided. Small businesses are particularly vulnerable to cash flow disruptions caused by delayed payments and as such effective debt recovery strategies should be part of prudent business planning.

Small businesses often operate with limited staff and financial resources, making it challenging to allocate dedicated personnel for debt recovery. Also, when clients come to us, they are often reticent about striking a balance between debt recovery and maintaining positive customer relationships, which can be delicate but necessary for sustained business success.

“Navigating the legal aspects of debt recovery requires a nuanced understanding of contract law, which may pose challenges for small business owners, or others simply do not have the capacity to chase,” said Leigh.

“Every business is different, we work with smaller SMEs, but also national companies and each case is individual and handled in compliance with relevant laws and regulations. We work closely with clients to develop personalized strategies that align with their business goals and values and find this tailored approach maximizes the chances of successful debt recovery.”

There are steps businesses can take before seeking legal action which include a proactive approach to debt management by; establishing transparent terms and conditions in contracts, timely and accurate invoicing, clear payment terms, maintaining open lines of communication with clients, and addressing issues promptly.

Effective Debt Recovery Strategies businesses can follow

• 1. Communication - Initiate a diplomatic dialogue with the debtor to understand their situation and explore mutually beneficial solutions.
• 2. Structured Payment Plans - Collaboratively develop a structured payment plan that accommodates the debtor's financial constraints, whilst ensuring timely repayment.
• 3. Escalate with Professional Help if necessary - If diplomatic efforts prove ineffective, consider engaging a legal adviser with professional commercial debt recovery services to escalate the recovery process.
• 4. Understand Your Rights - Familiarize yourself with your rights as a creditor, ensuring compliance with relevant laws and regulations.
• 5. Document Everything - Maintain meticulous records of all transactions, communication, and debt recovery efforts, as these may be crucial if legal action becomes necessary.

What happens when a ‘letter before action’ is issued

At Pearson, our commercial debt recovery team will send a Letter Before Action to your debtor. For instructions received before 2 pm, the letter will be sent on the same day and usually the next working day, if after 2 pm.

It will demand payment within 7 days (for a business) and 30 days (for an individual) and your debtor will then understand that you take late / non-payment seriously. We find that in the majority of cases, payment is received within the deadline set in our letter and you can get on with running your business.

Commercial debt recovery is an integral part of maintaining the financial health of small businesses and by adopting proactive debt management practices, effective communication, and, if needed, legal avenues, small business owners can navigate the challenges of debt recovery successfully.

“Many clients do not realise that they are entitled to charge interest and an administration fee on their invoiced debt and often this actually covers their costs, so they have nothing to lose, provided a recovery is forthcoming,” advised Leigh.

“Prioritizing these strategies can help create a robust foundation for sustained growth and resilience in the face of economic uncertainty and I’d urge businesses to call us for a no obligation chat,” said Leigh.

How we can help

To recover or seek advice about debts, get in touch by completing the online enquiry form. Alternatively, call us on 0161 785 3500 to speak to Leigh and the team or email enquiries@pearsonlegal.co.uk.

Subscribe to our newsletter

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.