by Maria Koureas-Jones, Assistant Solicitor at Breeze & Wyles Solicitors LLP

In these uncertain times, how do businesses with a profitable core operation ensure that they are able to grow when new opportunities arise?

Business decision makers should focus on maintaining a strong cashflow position.

In a recession, cost-cutting exercises are the norm to improve cashflow, usually achieved through redundancies and a tighter debt control system.  However, redundancy is often primary, particularly true where a business goal is survival and salary costs are high.  Whilst redundancies will help reduce staff costs long-term, in the short-term it may not materially improve cashflow because redundancy payments and notice periods have to be funded.

Entering the redundancy process will often result in key staff being taken “out of the business” while they oversee and manage the redundancy process and this limits the time the business is able to dedicate to customer acquisition and service.  This will inevitably have an effect on turnover.

Change of emphasis to recovering aged debts

Any business will focus on customer and contract acquisition and then delivery to those customers.  Whilst banks were lending in support of growth, book debt recovery was down the list of priorities as it supported the borrowing.  However, as lending has been severely curtailed, focusing on recovering aged debts is imperative to position for growth.  Without this focus, cashflow will not be as strong as possible and “scaling up” may not be a real economic option.

Solicitors, like Breeze & Wyles LLP, have noticed an increase in the age of debt upon which they are asked to advise, notwithstanding the fact that banks are placing greater emphasis on a business‟ ability to review and analyse the profile of its debtor book.

Cost effective debt recovery may offer a real opportunity to improve cashflow in the short-term, without incurring the costs associated with the redundancy process and the detrimental effect that redundancies have on growth potential.  A review of your aged debtor list will show a considerable amount of “survival” or “growth” money tied up in debt, much of which is long-term.  Do not be a Bank for your clients with cheap funding because no interest will be paid and the risk of damage to your business increases with the debt.

So what can a company do?

An analysis of the debtor book will ensure that your staff are not deployed on work for which payment will never be received.

  • Ensure credit check monitoring is an essential part of the customer acquisition and retention process.
  • The contradiction between aggressive debt recovery and customer retention is accepted but often a solicitor‟s letter adds the necessary pressure to encourage payment by your debtor without over jeopardising the customer relationship.
  • The cost of sending an initial solicitor‟s letter to each of these debtors and follow up should be favourable compared to the cost of time/redundancy pay and lost opportunity that will be involved in staff redundancies.

How does it work?

Solicitor‟s letters before action are sent to chosen debtors.  Added to the debt amount is compensation and interest to which you are entitled in order to maximise your claim.  As already stated, many of your debts will likely be paid following these initial letters thereby providing immediate cashflow.

Where payment does not follow thedebtor and the solicitor investigates whether the debtor has sufficient assets to make Court action cost effective.

Solicitor letters and Court action all sound expensive.  However, a company choosing this path can make the process affordable and viable by selecting solicitors that have low, fixed cost fees for sending letters before action and who offer debt recovery services with lower Court fees and fixed cost legal fees when issuing proceedings against those “will not pay” debtors.

Good debt recovery services ensure that aged debtors can be pursued quickly and cost effectively.  It can offer an alternative solution for improving cashflow so that you can strategically place yourself to achieve the business‟ goal.  Whilst the business may need to still undertake other cost cutting exercises, depending on the level of aged debt, cost-cutting exercises like redundancies may not need to be at the top of the list.