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Jargon busting in debt collection

Some of the words and phrases commonly used in debt collection may be unfamiliar or confusing. But don’t worry, help is at hand.

In the first of a series of jargon-busting blogs, we share simple, no-nonsense explanations for some of the common buzzwords, legal terms and acronyms that you may encounter when dealing with debtors, debt collection agencies and the courts.

Creditor and debtor

We’ll kick off with a relatively simple one. A creditor is anyone who’s owed money by a person or company. The person or company that owes the money to the creditor is called a debtor. For example, let’s say you’ve invoiced a customer on credit terms, rather than accepting an upfront payment or cash on delivery. That makes you the creditor and them the debtor.


A liability is something which a person or company owes to another person or company. Liabilities include debts of money. In accounting terms, they’re the opposite of assets, which are things that you own or debts that are owed to you.


Most people have taken out a loan or mortgage at some point in their lives, so will probably be familiar with the term ‘interest’. It’s the amount charged on top of the loan as a fee for borrowing the money, usually calculated as an annual percentage.

When you invoice a customer on agreed credit terms, you’re effectively giving them an interest-free loan of the money they owe you - for a period of 30, 60 or maybe even 90 days. However, did you know you’re legally entitled to charge interest to commercial customers who don’t pay on time? The Late Payment of Commercial Debts (Interest) Act gives you the statutory right to claim interest at 8% above the Bank of England base rate.

Credit score

A credit score is a number which shows how likely it is that a debtor will repay a debt, based on their track record of using credit and managing their finances. In the case of a business, it’s also based on the debtor’s most recently reported financial performance and balance sheet. Credit scores range from 0 to 100, with 0 indicating that the debtor is a high risk and 100 representing a low risk.

There are three main credit reference agencies (CRAs) in the UK: Experian, Equifax and TransUnion. They securely hold data about the financial history of an individual or a business This is known as a credit report and it’s used to generate a credit score.


Inflation is the rate at which prices for goods and services rise over a given period of time. So, if you find yourself paying more for the weekly shop, materials in your business or energy, that’s inflation.

In debt collection, inflation can have a significant impact because it can increase the risk of debtors being unable to pay their debts. With costs rising, a business may choose to protect cash flow by delaying payments to suppliers, or they may prioritise certain debts, for example bills from landlords or energy companies, at the expense of other creditors.

Written off debt

If your business is struggling to recover a debt, you can choose to write it off. That means the debt is no longer payable and the debtor is released from all responsibility for the debt. For accounting purposes, it becomes a ‘bad debt’ and is written off against the accounts receivable account, reducing the turnover and profit.

Writing off a debt should always be an absolute last resort. However difficult it may seem; it may still be possible to recover at least some of the amount owed to you or negotiate payment by instalments. Rather than simply writing off the debt, it may be worth seeking help from a professional debt collection agency. Their expertise, experience and diligence may help you achieve a more positive outcome.

Simplifying debt collection

Debt collection can be complex, challenging and time consuming. At Redwood, we’re here to make life easier for you. With a straight-talking approach, we’ll explain your options and provide reliable, proactive support, whether we’re chasing a one-off debt or providing an ongoing debt management service. Our aim is simple: to help you get paid what you’re owed and ensure your business can Grow Stronger.

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