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Taking back control of your cash flow can seem a challenge. Unpaid invoices are the bugbear of any small business. Fortunately, with the right debt recovery services, you can ensure someone else is taking care of chasing your debts while you get on with business.
According to the Federation of Small Businesses, 52% of SMEs struggle with late payments amounting to £50 billion. Chasing a debt could put your business on the brink of insolvency. But with expert debt recovery services, you could recover the money you’re owed.
The first thing to decide is whether you’re chasing an overdue payment or a debt. If your customer doesn’t respond to a phone call, you may need to start formal debt collection. We’ll let you compare debt recovery services in your area for a speedy resolution to the situation.
So, what does a debt collection agency in the UK do? Debt recovery services are legally empowered to work on your behalf. However, there are several steps you should take before contacting a debt collection agency:
Invoice as usual
Chase for payment
Use a credit hold
Send a letter before action
If you're unsuccessful, your last resort is to pursue legal action via a debt recovery agency. These specialists could:
Issue proceedings for non-payment
Take enforcement action if you have a CCJ
Serve a statutory demand for bankruptcy
If you want to know how a debt collection agency in the UK could help your business, compare quotes at SpotDif now.
Not ready to start comparing? Then read on to discover how a debt collection agency could help you take control of your business finances.
It can be tricky to collect what’s owed to you while maintaining a good business relationship. That’s why some SMEs prefer to depersonalise the job of debt recovery.
A debt collection agency specialises in collecting unpaid debts on your behalf. You can hire a debt recovery specialist or sell your debt on to them. However, you must send a letter before action before starting legal proceedings. The legal debt recovery process looks like this:
This should flag any issues in recovering your debt.
This gives your creditors:
14 days to pay if they’re a limited company.
30 days to pay if they’re a sole trader or consumer.
This is governed by law but can be £40, £70 or £100, depending on the amount owed.
A fixed payment plan is a good alternative to legal action when a business owes you money because of temporary cash flow issues. A payment plan gives them breathing space. Negotiate with your debtor to agree on a repayment plan. State that legal action will result if they don't make a payment.
If payment isn't made, you can make the difficult decision to take a business to court. You'll receive a County Court Judgement (CCJ) if you're successful. If payment isn’t made within 30 days, your debt recovery agency can instruct the High Court bailiffs to seize goods to cover the debt.
This can be a powerful incentive to pay within 21 days or face insolvency or winding-up proceedings.
Most debt recovery services focus on the pre-litigation part of debt recovery. Your debt collection agency can handle writing the letter before action and then chase the late payments.
If the debtor is a company, you can claim compensation on your debt. The rates are currently fixed at:
£40 per invoice for debts up to £999.99
£70 per invoice for debts between £1,000 and £9,999.99
£100 per invoice for debts over £10,000
Additionally, you could charge an extra fee for debt recovery. But you must prove that the fixed sum doesn’t cover reasonable costs.
You can also add interest to the debt at the rate of:
8% if owed by an individual customer.
8% above the base rate if owed by a business.
Using a UK debt collection agency is more cost-effective than retaining a solicitor. You'll be billed hourly if you use a law firm to chase your debts. You'll also face additional charges for sending letters and emails or making phone calls.
Referring your debt as quickly as possible to a debt collection agency could save you money. The faster you act, the better your chance of recovering the debt without costly court fees.
In the UK, your debts can be collected by a debt recovery agency or a bailiff:
A bailiff, or enforcement agent, has special legal powers to collect debts, including CCJs.
A debt collection agency can ask someone to repay a debt, but they don’t have any legal powers to force payment.
All debt recovery services must be registered on the Debt Collection Agency UK list. Contact the Financial Conduct Authority to check whether a DCA is registered to collect debt in the UK.
A debt collection agency can act at any time to contact you about your debts before court action is taken.
Bailiffs collect individual and business debt, including Council Tax arrears, parking fines, money owed to HMRC and child maintenance arrears.
A debt collection agency collects commercial debt, including loans, credit card debt and overdrafts.
A bailiff has legal powers to take away goods totalling the sum of your debts. These are sold at auction.
A debt collection agency doesn’t have legal powers. They can only chase a debt through phone calls and letters.
For most commercial debt, a debt collection agency will get results without ever going to court.
Need to recover a business debt? Generally, this is a five-step process:
Make sure you include all the information you need to speed up payment, including:
A clear description of what you’re charging for
The amount to be paid
Payment terms, including date
Correct payment references for you and your client
If the invoice isn’t paid within the time limit, start chasing. A polite phone call or letter at this stage could prevent escalation. You could also use a credit hold - stop supplying your goods or services until the debt is paid.
If the debt still isn’t paid, use a debt collection agency. They’ll run checks at Companies House on the business’s address and finances.
This is a legal requirement if you intend to pursue action to recover your money. Your DCA will send a formal letter requesting payment within 14 days for limited companies and 30 days for sole traders. Your debt recovery service can make contact with your debtors to arrange payment.
A debt recovery specialist will help you make a Small Claims Court claim. Your debtor has 14 days to pay in full, plus costs and interest.
Collecting debt from individual customers is similar to collecting debt from companies. And you can use a debt recovery agency to chase customers for debt.
In most cases, a letter before action will be sufficient. This gives the customer 30 days to pay before further action.
Before you go to court, you'll be expected to pursue the Pre-Action Protocol for Debt Claims. This protocol covers:
The letter of claim
Details from the creditor about the debt
Deadlines for a response from the individual
Rules about information and documents
Taking steps to settle through the Alternative Dispute Resolution
You'll need to weigh up whether the costs of taking action are more significant than the debt itself. However, applying for a CCJ can be a powerful motivator for customers to settle what they owe.
In a worst-case scenario, you could start bankruptcy proceedings against an individual if the debt exceeds £5,000.
The fees you’ll pay for debt collection differ between debt recovery services. You could be charged for:
Enforcement, including bailiff's costs and attachment of earnings
Insolvency or bankruptcy
Court fees vary depending on the claim amount. Currently, you can expect to pay around £35.00 for claims of up to £300. These fees go up incrementally in line with the claim amount — for example, a claim of between £1,500.01 and £3,000 will lead to a court fee of £115. If the claim is over £10,000 (up to £100,000), the fee will be 5% of the claim.
Debt collection can be frustrating. But there are effective strategies for improving recovery rates and reducing costs:
Before any payment is due, outline your payment terms. Include a schedule of repayment dates and the consequences for non-repayment. Being transparent from the outset sets expectations and minimises issues.
Start by managing your accounts effectively. For example, send an email to customers approaching the due date for payment. If payment is overdue, initiating early contact can increase the chance of recovering the debt.
Contact your debtors consistently. Use a professional and courteous tone. Emphasise the need to maintain business relations while fulfilling debt obligations. And recognise their inability to pay by offering a repayment plan.
You may not have the time or capacity to chase a debt yourself. If you’re unsuccessful, using a professional DCA could be effective.
Choose a DCA with a track record of resolving debt issues using negotiation and legal processes. This decision will allow you to maximise debt recovery while focusing on your core business operations.
Debt collection and debt recovery are often used interchangeably. But there are a few significant differences that are worth knowing. That way, you can see when you need a debt collection agency or debt recovery services to handle outstanding payments:
Debt collection covers the initial steps to recover the debt, including phone calls and letters. Debt recovery is the process of taking legal action to recover your debts.
Other differences include:
Measures used: Debt collection relies on communication and persuasion, while debt recovery uses legal mechanisms to recover debts.
Legal procedures: A debt collection agency can’t use legal measures to force a customer to pay. Debt recovery often uses mechanisms like CCJs to compel debtors to pay.
Who is involved: debt collection is usually by the company itself or through a DCA. Debt recovery uses legally empowered enforcement agents to seize goods to cover the debt.
Firstly, to reduce late payments, you need to have a straightforward credit procedure in place. As soon as payment is late, send a demand and follow up with a telephone call.
It’s also important to have clear terms and conditions. This ensures you set your repayment expectations from the start. You may also wish to credit check your customers — know as much about them and their ability to pay as you can. Don’t delay credit collection — as soon as your customer defaults, pass the debt to a DCA.
If every other route has failed, you can use a County Court Claim for debt recovery. Here are the pros and cons:
A court claim can be a solid motivator to settle debts.
Your debtor may not want to spend time and money defending the debt.
A CCJ can affect a business's credit score and ability to get a loan.
The judgement can be enforced in various ways that suit the circumstances.
The claim may be ignored, and you won’t get paid.
The debtor defends the claim, which can lead to a complex court case.
Enforcement might not be successful.
Using a debt collection agency may prevent you from having to go to court in the first place.
When comparing debt collection agencies in the UK, here’s what to look out for:
Results: What’s the recovery rate for the agency?
Pricing: Is pricing transparent, and will you get a good return on investment?
Trust: What do other customers think of them? Check feedback and reviews.
Services: What services does your DCA offer, and how? For example, do they work through an online portal?
Accreditations: Is your DCA registered on the debt collection agency UK list?
If a debt collection agency is the right fit for your business, compare quotes with SpotDif.
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