Getting paid is perhaps the most fundamental operation of your business, yet it can also be the most difficult to manage.

Unpaid bills can seriously affect your cashflow, and like a cancer, allowing one account to slip away can lead to another. For many entrepreneurs, however, calling for help is often wrongly seen as failure; a sign you have not run your business well. But the numbers tell the real story.

Data from the Credit Services Association (CSA) shows that 54% of small and growing businesses are regularly using debt collection services to recoup arrears, as are 41% of their larger rivals. Overall, some £5bn worth of debt is passed to UK collection agents each year.

The numbers clearly call attention to a booming industry, even if most business people choose to keep their usage under wraps. For many it appears to be a matter of pride, a natural reticence to let others detect any signs of perceived weaknesses. After all, if seeking professional help is a sign of failure, the majority of Britain’s entrepreneurs must have no clue how to run a business. And we know that’s not true.

Nevertheless, two of accountant Martyn Cayless’ clients, both owner-managed small businesses, prefer to remain anonymous in this article. Cayless, of accountants MGI Midgley Snelling, says both companies regularly pass over their debts to professionals, and the experience has helped aid their growth. What’s more they scrutinise customers as much as the next business, he adds.

CHOOSING A CREDIT COLLECTION AGENT

“You should only choose an agent who is a certifi ed member of the CSA,” says Stephen Lewis, founder of Essex-based collection agency LPL Group. Lewis has been in the credit collection business 28 years and has heard plenty of horror stories from clients who went with non-registered agents only to get results that have damaged customer relationships and cost their business plenty.

Often the best indication of an agent’s ability, he says, is who its customers are. Trusted names and recommendations mean everything, particularly from within your industry. Lewis, for instance, works for approximately 400 different publishing houses. An agent who knows the subtleties of your fi eld, he says, needs less of your time. “A good agent must also show you the type of documentation he’s going to send out,” he says. “You want no secrets in how they operate.”

Businesses with older or more complex debts, however, might consider choosing a legal professional, particularly if they wish to pursue their debt through the courts. “A lot of times companies make basic mistakes,” says Nichola Upperton-Evans, commercial litigation partner at Manchester-based Rickson’s Solicitors.

“Sometimes a company may think money is due, but we can point out potential diffi culties with the case. For example, if you have issued on a debt collection case that has no prospects you could potentially have to pay expensive legal costs to the other party.” She says solicitors can also show companies how to collect interest and even claim expenses such as travel and attendance costs. However, outside the courtroom, she acknowledges there is little distinction between the service agents and solicitors provide.

David Heppell, association manager of the CSA, agrees the service is similar but says agencies are open to a broader range of activity while solicitors tend to lean towards legal proceedings to assist in collecting overdue amounts which can sometimes be more costly for clients.

HOW MUCH?

Debt collectors generally charge on a commission or contingency basis. An average commission fee runs from 8% to 12.5% of the amount collected, Lewis says. However, if a case is two or three years old, that fee can rise to 20%. Older debts can warrant up to 35%.

Conversely, many companies will hire an agent just to send a message to a stubborn customer. In this case, the agent will charge a fl at fee by the letter, often between £2 and £16, Lewis says. However, Heppell explains there is no standard among agencies for charging fees, nor the basis for the charge. “The reason for the variety of fees, and the way in which they can be calculated, is the virtually unlimited variety of arrangements,” he says. “Clients can give a range of instructions and there will be differences depending on the industry involved, type of customer and age, type, size and volume of debts to be collected.”

Solicitors differ somewhat, says Upperton-Evans. They calculate fees based on six-minute blocks of time and are governed by the Law Society, which obliges them to provide clients with strict estimates of charges. In this sense, the more work a company does in advance, the less it will pay. “There are always ways to cut costs,” says Upperton- Evans. “Silly things like putting correspondents in chronological order will help. You can even come to a work-sharing agreement.”

Choosing really depends on how you feel about your customer and how much time and money you want to invest. The more activity you require, the more expensive it will be. “A good company should give you options and negotiate,” Lewis says. “You can’t really offer a service that is best for all. You must suit the service to the debt.”

HOW DOES IT WORK?

The process begins with an initial engagement, says Mike McGuckin, managing director of Agilisys Contact Services, and the more clients bring to the table the faster their debt can be recovered. “We ask clients what communications they are issuing and tailor responses around that,” he says. “You might have a customer that is historically lax, which means a letter-based approach might not work. At this early stage, our goal is to understand the reason for the non-payment.”

Most early-stage problems stem from a dispute or budget miscalculation, McGuckin says. In that sense, the fi rst call is mostly diagnostic, focused on the benefi ts of paying rather than the consequence of not paying. However, if there is still no response, the agent will take a more “hardline approach” and schedule payment dates. These dates are preceded by reminder calls and followed by letters if no action is taken.

“We find that 60-70% of companies will pay when under threat of being put on stop,” McGuckin says. “They will either look for any excuse in which to restart the invoice clock or hang on to pay until the very last minute. The trick is to identify the second group and remind them they will be put on stop.” Overall, it takes typically 30 days to collect early debt, he says, while later stage debt averages 60 to 80 days. However, if you plan to go to court, Upperton-Evans warns the process could take between nine and 12 months.

WHAT ARE THE ADVANTAGES?

McGuckin believes his profession should be thought of differently. Agents recover more than debt, he says. Businesses often use this experience to hone their strategy by following up invoices more aggressively and better vetting potential customers before signing a contract. “As businesspeople, we all have to be prepared to recognise what we are good at and not good at,” says Peter Sargent, Council member of R3, the Association of Business Recovery Professionals. “When you fi nd you spend more and more time trying to collect debt than winning new business, it could be time to bring in a professional.”

Sargent, who ran his own practice for more than 10 years, is not surprised by the reticence of most companies to talk about their use of collection agencies. In fact, it’s quite telling of how they ended up in such a situation. “Being British we don’t like to talk about money. We all hate ringing people saying you owe me money. It’s uncomfortable for anyone.” And that alone, he says, is a major reason for the rising popularity of debt collection services. As Cayless recalls, not only are his two clients getting back better than 75% of their debts through these services, but their customer relationships have improved and they have more time to focus on their growth.