A business is only as healthy as its cash flow. This is true of huge multinationals, it’s even more pertinent that owners of SMEs be aware that ‘Cash is King’. Cash means liquidity and liquidity is fundamental to the growth and development of your business. Without sufficient liquidity you can inadvertently hobble your business by being unable to make transactions that will benefit your business such as a cheap bulk order of stock, a bargain priced piece of equipment that will increase your productivity or moving to a new larger premises. It can also ensure that you’re paying off your business debt in a timely manner without incurring unnecessary interest or charges.

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In a business climate where the value of commodities rises and falls, the plucky SME can stay agile and ensure their growth by being mindful of the flow of cash through their business. This can be extremely difficult when you’re faced with uncooperative debtors. What’s the use in invoicing early and diligently chasing your payments to help keep your cash flow healthy if your customers aren’t forthcoming with payment. While nobody likes to make an enemy of a customer (whom we may see as future assets to the growth of our businesses), you owe it to yourself and your enterprise to protect yourself against monetary losses.

Knowing when to take action

One of the key difficulties that businesses face is knowing when and how to take action against their debtors. Your first call should always be to a consumer defense lawyer, who’ll protect your interests through proper legal channels and not the underhanded means of some private debt collection agencies that may bring your business into disrepute. However, litigation should be considered a last resort and there are numerous steps that you can take before entangling yourself in a long and potentially costly legal battle (although many consumer defense lawyers work on a no-win-no-fee basis).

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Establish a timeframe

There are steps that can be taken without needing to go to court (although it is recommended to seek legal advice prior to initiating the following proceedings). Throughout the process your behaviour needs to be unimpeachable despite the stress or panic that you may be feeling. In your written and verbal correspondence you should be polite yet assertive without being threatening or personal.

In order to keep things professional and appropriate it’s a good idea to establish a time frame for further action that will hopefully prevent escalation. This should be predetermined and appropriate to the debtor and the size of the debt. It’s perfectly reasonable to expect a payment for a $100 debt by the end of the week but that might be unrealistic for a $10,000 debt. The timeframe should be clearly referenced in all communications. A polite reminder detailing your expectation for some sort of payment plan to be reached within 30 days’ time is usually acceptable.

A polite reminder from your legal counsel

Very often a letter from your lawyer is enough to get most debtors to realize that you’re serious. If they’re able then they’ll probably pay up straight away, but it’s important to be receptive to setting up a payment plan if your debtor is unable to pay off the debt in its entirety straight away. Again, this should establish clearly when you expect the debt to be settled by and extend an olive branch to meet them halfway if they’re unable to make payment instantly.

Make sure that your debtor is made aware of the consequences of ignoring your reminder. If they do so, they will face a final demand and after a prescribed length of time (usually 30 days from the issue of the final demand) you will be left with no recourse but to pursue legal action. You can find a checklist for composing an effective final demand letter here.

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Going to court

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Very few debtors will want to take things this far but if they’re unwilling to even open up a dialog regarding payment at this point, then you have no choice but to initiate legal proceedings. Filing a small claim is appropriate for most business debts but it’s worth looking into the maximum claim limit for your state as it may not encompass the size of the debt. A complaint must be filed with your county and a case will have to be built to demonstrate that you provided the goods or service in question and that the debtor did not pay. Therefore, it’s vital that all of your transactions are effectively logged in order to provide evidence to support your case.

Nobody likes to have to chase a debt, but by following the proper procedure you can recover your debt without damaging your business or its reputation.


Founder and chief editor of makemoneyinlife.com Blogger, Affiliate Marketer, Tech and SEO geek. Started this blog in 2011 to help others learn how to work from home, make money online or anything related to business and finances. You can contact me at makemoneyinlife@gmail.com

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