5 Top Tips for Effective Debt Collection in Business

23rd July, 2025 by Sam Leaver

Cash flow is essential to every business. Yet, many companies still find themselves chasing overdue invoices — often too late or without a clear strategy. To reduce risk and improve recoveries, here are five practical tips to streamline your debt collection approach:

1. Know Who You’re Dealing With

Before contracting, know who you’re doing business with — is it an individual, partnership or company? Make sure you’re contracting with the legal entity that has the ability (and obligation) to pay. It’s a simple step that can prevent a lot of pain later. If you have concerns, credit checks can be undertaken.

2. Get It in Writing: Contracts Matter

Ensure you have written contract terms in place to protect your position, and allow you to refer back to the obligations. Consider if its appropriate for your agreements include:

Payment terms (due dates, late fees, etc.)
Retention of title clauses to retain ownership of goods until paid
Personal guarantees, especially when dealing with smaller companies or sole traders

These simple inclusions can make enforcement much easier down the line.

3. Streamline Your Internal Process

Time is everything. Have a clear, internal collection process — when to send reminders, when to escalate, and how to record or report everything internally. Automate what you can. Make sure everyone in the process, including sales teams, know the process and enforce it. The more consistent and efficient your follow-up, the better the results.

4. Know When to Escalate

Some red flags mean it’s time to act:

A customer has made repeated promises to pay, but no payment has actually been made. This can suggest that they do not have sufficient assets/cash to meet their obligations
Unexplained silence – a lack of communication can also signal a ‘head in the sand’ approach by a customer who cannot/will not make payment
Communications with vague, unsubstantiated but repeated ‘concerns’ which attempt to swerve liability for payment or reduce them
Becoming aware of the customer being in financial difficulty. This could be talk in the industry, news or formal processes being instigated.
Yourself entering financial difficulty as a result of the unpaid sums. This can be particularly prominent if the customers have high value orders which they have not paid to you, and can quickly impact cashflow significantly.
Don’t delay. The longer you wait, the lower your recovery chances.

5. Use the Right Recovery Method

If payment isn’t forthcoming, consider escalating to a legal process. This can include:

Issuing a claim with the courts. This first does require the sending of a Pre-Action Letter which sets out the claim which you intend to pursue. Starting this more formal process, can encourage the debtor to engage with you. If the Pre-Action Letter does not prompt a resolution, you can consider issuing a formal claim with the Court which will require a response from the other party within 14 days. However, this formal process should not be instigate without full consideration paid to its impact in its entirety.
Serving a statutory demand. This is relevant where there is a real issue of insolvency/bankruptcy and is a formal demand for sums owed and must be responded to within 21 days (for a company recipient) or 18 days (for an individual recipient) and requests payment within 21 days in both cases.

Choosing the right method, with prompt and strategic considerations can impact the effectiveness of the process as a whole.

The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.

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