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The cost of living crisis – it's time to take action on overdue debts

Rising costs and interest rates are putting pressure on the finances of both businesses and individuals, increasing the risk of debts remaining unpaid. As a creditor, what can you do to give yourself the best chance of collecting the money you're owed?

In a recent survey of business owners by commercial banking service Tide, over three quarters of respondents said that the cost of living crisis is having a negative impact on their businesses. In June, BDO's bi-monthly survey of 500 leaders of medium-sized businesses showed that almost a fifth believed that the cost of living crisis and rising inflation had or would have more of a negative impact on their business than the COVID-19 pandemic.

With such huge challenges facing businesses of all types and sizes, it's a worrying time for creditors – with a potential knock-on effect to debt recovery. Many customers will not only struggle to pay their bills on time, but may be in real danger of default. If their financial troubles lead to bankruptcy, you could be left out of pocket.

That's why it's more important than ever to take steps to resolve unpaid debts and achieve a swift resolution, hopefully ensuring that you don't have to resort to legal action or debt write-off.

Are you communicating?
The first step is to make every effort to get in touch with the customer and find out why they're not paying the outstanding debt. There may be a simple issue which can be resolved quickly. If it's impossible to make contact with them, that's when alarm bells should start ringing. It's time to take things to the next level – perhaps by bringing in a professional debt collection agency.

Are you at the front of the queue?
If a business is experiencing cash flow problems, they're likely to be prioritising certain creditors. Make sure you're one of them. Again, instructing a professional debt collection agency could be the way to go. It can be a very persuasive method of convincing the customer to move your debt up the priority list and get you on the next payment run.

Could an instalment plan be the answer?
Getting paid in instalments is better than not getting paid at all. If you're sure the customer's reluctance to settle the debt in full is simply a temporary cash flow issue, putting in place a mutually agreed payment plan could be a smart move. It's not great for your own cash flow, but it may be a better option than having to take legal action and is certainly preferable to simply writing off the debt. It also means you won't be burning your bridges. If and when the customer's financial position improves, you will still have a good working relationship with them.

Could you consider a contra arrangement or set-off?
If your debtor has a product or service that you can use in your own business, it could be worth negotiating a barter deal, more formally known as a contra arrangement. You could accept goods or services in lieu of all or part of the debt they owe you.

If you're already in a two-way trading relationship with the customer, then set-off could be a viable option. It's a relatively straightforward accounting procedure in which you credit part or all of the debtor's outstanding account by 'setting if off' against the amount you owe them.

Professional help can be valuable
Having an expert debt collection agency on your side can be reassuring in these uncertain times. At Redwood Collections, we have a strong track record of achieving excellent results, combining a proactive approach with professional integrity. What's more, we operate on a 'no collection, no commission' charging basis, so putting your overdue debts in our safe hands is an affordable option. Despite an economic climate that's creating strong headwinds, we can help your business move forward confidently and Grow Stronger.

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