Three Key Lessons About Debt Recovery

Linkilaw Startup Advice & Tips

When running a small or medium-sized business (SMB), a steady cash flow is pivotal – it is the principle upon which hinges your financial health and success. This is why there is nothing more hazardous to the thriving of your company as the non-paying or late-paying customers or clients. Here are the three principles proven to help you tackle the often unpleasant, yet undoubtedly necessary pursuit of debt collection.

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  • Assess whether or not the debt is worth collecting

One of the most important thing in debt recovery is outweighing whether or not it’s worth going after it. Because, as illogical as it sounds, collecting the debt can sometimes cost you more than if you just let it go. What’s more, there is not much of a difference in terms of the size of the debt: Chasing large and small debts is going to cost you money, time and effort; potentially surpassing the amount of debt. The expression “throwing good money after bad” immediately comes to mind, doesn’t it? Before taking action, think it through carefully.

  • Get your customer details right

The devil is in the details, as they say. The US Court of Appeals recently had to deny the appeal of a good supplier who couldn’t get its debt recovered from a customer, simply because they had failed to confirm the identity of the debtor. To dodge this technical hindrance, we suggest you apply a pedantic and thorough approach when identifying who you are selling to. Make sure your customers fill in credit application forms fully and accurately; that all the bills and orders are carefully documented; that you check the truthfulness of their information via public sources.

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  • Study the Terms and Conditions

The common legal position suggests that “the ownership of goods passes at the time the goods are delivered to the buyer, even if the buyer has not paid for them”. With that in mind, it is a good idea to add a so-called “Retention of Title” clause in your terms and conditions, which reverses the common legal position. In case the buyer becomes insolvent, the clause will allow you to recover the goods, even if you decide not to go after the debt itself.

We have written about debt recovery extensively. If you’ve missed it, check out our past posts on: