Bad debt recovery practices every business should follow

Bad debt is rarely the result of one unlucky customer. It is usually the result of a business that has no fixed way of following up on what it is owed. The practices below are the ones we see working in the businesses whose receivables we collect.

1. Develop a debt collection and recovery process

Write down a process that includes regular contact with debtors and a clear timeline for when and how a case is escalated: the first reminder, the second, the formal demand and the referral to a lawyer. A process that exists only in someone's head is applied inconsistently.

2. Create a collection policy and protocol

The policy should say who is responsible for collection, how debtors are contacted, which collection methods are used at each stage and when a file is referred to a lawyer. It should also set the credit terms and limits offered to customers in the first place.

3. Establish communication guidelines

Set clear rules on when and how to contact debtors and how to respond to their requests, for example for copies of invoices, for a statement of account or for more time. A prompt, documented response removes the excuses that delay payment.

4. Stay professional

Remain professional and courteous when communicating with debtors, and comply with the laws and regulations that apply. In the UAE, threats, harassment and public shaming can expose the creditor to liability under the Penal Code and the Cybercrime Law, and they rarely produce payment.

5. Negotiate payment plans

Where a debtor is willing but unable to pay at once, negotiate a payment plan that both parties can live with, secure it where possible with post-dated cheques or a signed acknowledgement of debt, and follow up on every instalment.

6. Use technology

Use your accounting or invoicing system to automate reminders, track ageing receivables and keep the communication history in one place. Automated statements sent on time are one of the cheapest collection tools there is.

7. Use a collection professional when necessary

When internal follow-up is not producing results, refer the file to a professional. A law firm's debt collection department brings the weight of advocates who can and do file claims, and works within the professional conduct rules that protect your reputation. Make sure whoever you use complies with the applicable laws.

8. Consider legal action as a last resort

Take legal action only after the other options have been exhausted, and only after checking the applicable law and time limits. In the UAE, a written and undisputed debt can be enforced quickly through a payment order, and a bounced cheque can be executed directly, so the legal route is often faster than businesses expect. Get advice before you decide.

Our Debt Collection Department applies these practices for clients every day. Contact us if you would like help with a specific debt or with your credit control process.