Debt collection during lockdown: Practical advice for ethical and effective credit control – guest blog by Satago
12 November 2020
When the first lockdown hit in March, credit controllers found themselves in unchartered waters. Normal procedures had to be reconsidered as businesses grappled with the legal and ethical implications of collecting debts in a global crisis.
Debt recovery solicitors Flint Bishop found that creditors took vastly different approaches as the pandemic unfolded.
Some decided to offer payment holidays to clients, pausing all debt recovery proceedings in order to maintain a positive public image. Others shortened their payment terms and doubled down on credit control in order to recover debts more effectively and protect their cashflow.
Now, with the second lockdown under way, credit controllers need to think practically about how to approach debt collection in a way that is both ethical and effective. There is no doubt that managing cashflow will be central to the recovery of businesses.
Changes in the law
In June this year, the Government introduced the Corporate Insolvency and Governance Act (CIGA). The new bill is designed to protect companies who are at risk of insolvency due to the pandemic from being forced into winding up proceedings by their creditors.
Under CIGA, creditors cannot use statutory demands or winding up proceedings against debtors who are unable to pay because of coronavirus. Additionally, debtors on the verge of insolvency can apply for a moratorium (debt holiday) in order to give them the breathing space to recover.
However, CIGA is not a get out of jail free card for anyone who doesn’t want to pay their debts. According to PDT Solicitors, business need to provide evidence that they are unable to pay as a direct result of the pandemic for the law to apply.
Adjust your payment terms
By adjusting your payment terms now, you can protect your business from late payments in the future.
Use a risk insight tool to establish which of your clients are currently at a high risk of paying late and consider reviewing their credit limits. For added security you can reduce your payment terms or ask for upfront payments from at-risk clients during this period.
Take a customer-focused approach
Communicating with your debtors and understanding their pain points will help you establish payment plans that work for both parties.
If a client has been forced to stop trading entirely due to lockdown, offering them a payment holiday or accepting part payment until trading can resume may be the most ethical and practical solution, providing it does not negatively affect your business’ cashflow.
Different strategies may need to be considered depending on which industry your business serves. Clients in the construction sector, for example, may require greater leeway than those in the service industry.
Maintaining good client relationships is crucial for ensuring prompt payment and protecting your business’ reputation.
Ensure you send frequent payment reminders, monthly statements and thank you emails to your clients and respond promptly to invoice queries and payment concerns.
Use an automated credit control tool to stay on top of client communications and make sure you adjust your sending schedules and templates when negotiating payment terms with clients who have been affected by the lockdown.
Satago has launched its Get Businesses Paid campaign to highlight the damage caused by late payments.
Satago is the app that helps you say goodbye to late payments and bad debt for good. The platform integrates seamlessly with your accounting software and provides automated credit control, risk insight and invoice finance, all in one place. Click here to try two weeks of Satago free.