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Along with traffic wardens, politicians, and estate agents, debt collection is one of those professions that has a perennial problem with its public image.
But while the unfortunate association between debt collection and burly, menacing men using dubious means to take money from the poor and unfortunate may still persist, as with many things in life, there is a significant gap between perception and reality.
As a modern professional service, debt collection is more similar to accountancy or the legal profession than the gangsters of TV programmes and the tabloid press. Moreover, the debt collection sector is all about standing up for the little guy – much of the work we do is helping freelancers and small businesses control their credit and cash flow so they can keep trading.
Here are some common myths about debt collection, and the reality behind them.
People often confuse debt collectors with High Court Enforcement Officers (HCEOs) or County Court Bailiffs. Bailiffs and HCEOs are officers of the court and have very specific legal powers, whereas debt collectors do not. Officers of the court are empowered to collect and enforce certain types of debt – usually those relating to tax, court judgments, child support and maintenance awards, and business rates or rent.
Unlike bailiffs, debt collectors are not authorised by the court and do not have the legal right to take property from a debtor in lieu of non-payment.
Professional B2B debt collectors who follow industry standards of ethical best practice will rarely resort to visits in person as they are largely unsuitable in a majority of cases. Most of our work is done by staying in constant contact with your debtor by letter, telephone, and email.
The earlier you contact a debt collection agency, the more we can do to help. While we would always advocate trying to resolve one-off or occasional late payments with a client directly, we would strongly advise you seek professional help as soon as you feel a problem is becoming persistent and causing your business cash-flow problems.
Requesting payment for contractual arrears or unpaid invoices through a collections agency shows a client you are serious about your credit control, and is often enough to nip burgeoning late payment problems in the bud.
Moreover, if there is a serious problem, for example if a company is facing financial difficulties, you’re significantly more likely to get paid if you take prompt action.
Contrary to persistent rumours, a reputable debt collection company will not threaten, shout at, abuse, or otherwise annoy your clients when they are pursuing unpaid amounts on your behalf. Not only is it counterproductive from a collections point of view, like any business debt collectors want to retain their customers, not scare them away with unethical business practices that ultimately cost the client money.
An effective debt collection company specialises in polite, professional negotiation to resolve queries and recover the funds, without alienating the good relationships with your customers upon which your business relies.
Unfortunately, stories of spurious debt collection agencies charging clients so much they end up out of pocket, even when a debt is recovered, cling to the industry. The reality is such instances are rare and do not reflect the practices of genuine professional agencies. However, that is not to say that it doesn’t happen and a small number of disreputable and persistent offenders still operate in such a way as to catch the unwary out with surprise charges or significant additional fees.
When looking to engage a collections company, always make sure you conduct appropriate due diligence and choose an agency with verifiable testimonials from named clients and a clean credit report. Be sure to avoid any agency that is recently incorporated or requires up-front payment of handling or membership fees, and check any contract or terms and conditions carefully to ensure you aren’t agreeing to pay any hidden or abortive fees if funds are not recovered.
Although issues of distance and jurisdiction can make debt recovery from export clients seem daunting, it is far from impossible. Recognising this problem, many collection agencies have spent a lot of time and effort building up strong networks and partnerships with agencies in other countries. So if a company has an overseas debt problem, a good international debt collection company will have a local partner to take action on your behalf.
Again, care should be taken that the company in question is legitimate and that they have a proven track record in collecting export debts on behalf of their clients. Be sure to request verifiable and named references from former customers.
There is undoubtedly a time and a place for engaging a solicitor during the recovery of an unpaid invoice or contractual debt, but that place isn’t necessarily at the very start of a collection as issuing proceedings can be time consuming and expensive. This is especially true if the amount is under the £10k small claims limit; it’s rare for costs to be awarded in a small claim, even if you win the case.
A good debt collection company will work in tandem with an experienced commercial litigation specialist, so the collections company can pursue the debt amicably to start and then pass it to the solicitor if and when their input is needed. This gives the collections company the opportunity to resolve any potential problems well before you start incurring solicitor’s fees.
Like any business, debt collection companies come in all shapes and sizes – and so do their customers. Thousands of small businesses and freelancers engage debt collectors every day as they realise chasing payments for goods or services already delivered diverts time away from concentrating on those profitable customers that pay on time and in full.
In addition, many small businesses may not have the skills or experience in-house to take effective action and to ensure debtors are continually monitored while payment is outstanding.
Adam Home is Collections Manager at Crunch Collections, a debt collection service that specialises in reclaiming debts owed to freelancers, contractors, and small businesses.