How do I chase small debts?

Many of my wholesale company’s customers are sole traders or small businesses. When they don’t pay up it seems it’s cheaper for me to let debt go bad, as whenever I challenge a debt under £250 I end up paying my solicitor more than that in costs, whether I win or lose (made up of warrant fees, issue fees, judgements, faxes and telephone calls, enquiry agents and bailiffs fees, and bankruptcy petitions). This seems to make no sense. What can I do?


A. Christopher Jenkins of Wingrave Yeats writes:

The only way to solve such problems with small debtors of £250 or less, is to prevent the problem arising in the first place. There is little more that you can do in terms of recovery procedures than you are doing at the moment.

Ask yourself why they are unwilling or unable to pay. Let’s assume they have no genuine cause for dissatisfaction: the product is good quality and good value. Is it therefore because they know that they can get away without paying? If so, you have Growth Clinic Growing 30 Business June 2004 only your own credit controller to blame. If you haven’t got one then hire one, and don’t be scared of the cost. You can fill their time with other important tasks as well as debtor-chasing. Or else, allocate a member of your existing staff and train them well.

Or is it because they are just poor-quality customers, that you should not be dealing with anyway? Categorise your clients from ‘A’ to ‘D’. Be rigorous and get rid of the D clients. If your business can’t survive without them then you really have got a problem! Remember that, often, as much as 80% of your profit will probably come from only 20% of your customers.

Apply stricter terms of trade. The obvious answers are to insist on cash-on-delivery or payment by credit card, unless customers can first pass a rigorous set of criteria to qualify for a credit account. Counteract the cost of the credit card by adding 2 or 3% to the price. Alternatively treat the card charges as a relatively cheap form of debtorinsurance – which indeed they are.

But “Oh!” I hear you cry. “The punters will go somewhere else and I will lose market share!” If so, then, good is my answer. Your competitors will be burdened with the same problems that you have now.

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