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When should I take legal action with overdue accounts?

Deciding when to take legal action can be quite simple. It is when you want to FORCE the debtor to pay you what you are owed! 

The debt collection process will depend on the terms of trade between yourself and your customers (or clients). Your industry may also have a “standard” for payment.  It will also depend on what your current credit policy is. If you don’t have a credit policy start there – create one! 

A credit policy will enable effective credit management for your organisation. It will be a guide to consistent decision making and once implemented, will help reduce the likelihood of a bad debt and the need for debt collection. It will assist your accounts clerks to process their work in a consistent manner, rather than in an ad hoc way or on a case by case basis.  
In your credit policy you should consider what steps should be taken when an account is overdue at “X” number of days, on an escalating level of attention. This escalation continues until the debt is written off or you refer it for debt recovery legal action.

The fact that a company has referred the matter to a collection service can often be enough to see the recovery of debt. If your credit policy is “payment is due
within 30 days” then legal action to recover overdue accounts can start immediately.

Overdue accounts not only affect your cashflow they
waste business time and resources. If your customers are consistently
stretching payment terms, taking legal action can 
“re-train” them.

Explore the Debt Recovery blogsite for real case studies.

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