Recent reports in the press advising that banks may be looking to bring in third-party debt collection to collect Bounce Back Loans (BBLs) that go “bad” raises a number of important issues.
Debt collection agencies have always supported banks in collecting non-performing loans, credit card debts, mortgages etc. so to that extent the story is nothing “new”. What is new, perhaps, is the tone in which the story is being reported, and that seeking professional help is a sensible step for banks and Government to protect what is, in many ways, the public purse.
Certainly, whether directly or indirectly, the availability of credit impacts us all, and we should applaud those who take steps to strike the correct balance. Banks fear they may be “overwhelmed” with the task and are, understandably, concerned about protecting their reputations. They are also concerned about the increased blurring of the lines between personal and business debt, and the accelerated focus on vulnerability. Which is precisely why expert help is required.
How to choose a debt collection agency
Bringing this debate into the open raises another important issue, not least for smaller businesses and business owners: how to collect debts that are outstanding and, specifically, who to approach when all of their own efforts have been exhausted.
Many smaller businesses are understandably reluctant to take any action that might jeopardise a future relationship – especially in such unprecedented times. That is why the first step in choosing a debt collection agency is to only work with those who are members of the Credit Services Association (CSA).
Debt collection agencies that are members of the CSA already act on behalf of nearly all of the major financial institutions and the public sector in collecting “consumer” debt. But its members also manage more than 750,000 commercial accounts. Collectively they recover more than £400m every year including on behalf of many small businesses.
By using a member of the CSA, you will know that they are not only following the CSA’s code of practice but also following responsible guidance on how to collect debt during this difficult time. You can be assured that your customer will be treated fairly and shown the appropriate forbearance where it is needed.
Debt collection companies take into account the customer’s circumstances and are trained to be empathetic and flexible. This allows them to easily adapt to give customers the appropriate periods of breathing space or negotiate more time to pay or agree an affordable settlement. It also means they can signpost customers to organisations that can provide them with additional free advice if they need it. Crucially, if customers let them know that they are in the process of getting advice, they will make sure that they give them the time to do it.
Why a customer hasn’t paid
There may be any number of reasons why a customer hasn’t paid. Some customers want to pay but can’t; some may have other reasons. A customer may not be paying, for example, because they have had to furlough their staff, or are still waiting for a loan to be agreed, in which case the issue is one of timing. It could be, however, that there is no such reason for a debt not to be settled. In these situations, a CSA member will again identify the issue and negotiate an appropriate arrangement to their client’s satisfaction.
No win, no fee
The key focus is on achieving successful outcomes, to secure payments where payments are possible, and provide help and support where such support is clearly needed. Working with a CSA member will give you clarity in the service they will provide, and transparency on the costs you can expect. Many operate on a “no win, no fee” basis (assuming no legal action is required) and charge a commission only on the monies recovered, so in many ways you have nothing to lose. Recommendation is important: speak to other firms who use the debt collection agency’s service and learn from their experience. Often it is advisable to work with an agency with particular sector expertise, who understands the nuances of your trade, and what is considered “normal”. Often you will find that the mere suggestion of third-party intervention is sufficient for a customer to settle what is outstanding.
‘Make sure that the hard work you’ve already put into your business is paid for’
The general advice for when an invoice is overdue and has gone past term is to not wait. Whilst new revenue might be harder to find right now it is important to make sure that the hard work you’ve already put into your business is paid for. CSA members will work with you as an extension of your business, to protect your reputation. While it is perfectly natural for a business to be concerned that bringing in a third-party may end up losing them a customer, it is also worth noting that a customer who doesn’t pay, might not really be a customer worth keeping at all!
So, don’t ignore unpaid debts and use a professional to manage the debt collection process. Engaging with a CSA member will soon put you at ease that your business is in safe hands.
Chris Leslie is chief executive of the Credit Services Association
Further reading on debt collection