Don’t write off a bad debt – recover it: why we launched Capitalise Recovery

It’s coming up to four months since our bad debt recovery service Capitalise Recovery was launched, in partnership with our partner firm Capitalise.

Capitalise provides a convenient way for businesses to access lenders, and their funding platform has helped businesses secure over £260 million worth of funding to date. They work with over 100+ financial institutions and 2,000 accounting firms in order to help businesses grow, and have been working successfully with Escalate for a number of years.

Since the launch of the new service, we’ve received a number of referrals through Capitalise Recovery, so it seemed like a good time to recap on how it works, what the benefits are, and what sort of cases we take on.

Why was Capitalise Recovery launched?

96% of SMEs will experience bad debts at some point. They may not feel the impact of it until the end of the financial year, or the pinch point may be felt sooner, when a significant bad debt is impacting their day to day running.

The reality is that 89% of companies will not instruct a lawyer when faced with a dispute, because of widespread dissatisfaction with the traditional legal process. High legal and court costs, a lack of trust, and the system being heavily defendant biased forces many small businesses to simply write off ‘good debt’ and not pursue otherwise viable claims.

Capitalise Recovery plays a vital part in the current climate

Two of the key challenges facing businesses right now are late payments and commercial disputes. It’s no surprise to anyone that Covid-19 has increased the time to pay invoices. Typically 28-29% of invoices are paid beyond payment terms, and the impact of Covid has resulted in a significant increase in late payment.

As the Government start to pull back some of their measures (for instance CBILs) and the furlough scheme winds down, the impact of these late payments will be felt acutely by SMEs.

Currently your business might be using automated emails and templates to threaten court proceedings, or you may have considered engaging a debt collector who will send out several warning emails. All of these actions ultimately result in a dead end, because there isn’t the capacity for whatever reason to go over the next hurdle of actually recovering the bad debt, which requires litigation and therefore funding. And so the debt is written off.

What Capitalise Recovery can do to recover bad debt

Capitalise Recovery is more than just credit control and automated emails, and is designed to be used at the point where a client is going to write off the bad debt. Rather than write it off, we aim to recover it.

It removes the barrier to recovering payment and speeds up the legal process (which typically takes 18 months). There’s no upfront costs and no financial risk, as the service is fully funded. Essentially, Capitalise Recovery is a ‘no win no fee’ service.

Through our collaboration, Escalate take referrals from Capitalise, and assess each case for its legal merits. The client is then advised on whether a case is viable or not. If it’s unlikely to have a successful outcome, we’ll advise the client of the legal rationale behind this (for example, it’s already been to court), which in turn gives the business a sense of closure as to why a case can’t be pursued.

For cases which are viable and have legal merit, this filtering process enables them to have the highest possible chance of success if it does reach court – there’s a high propensity for the cases in this funnel to win.

Once a case is engaged, it will be negotiated with the other party – this stage is where we see a high percentage of cases settling without ever reaching a courtroom. If we can’t reach an agreement there, the case will progress to the high court, fully funded all the way of course.

Disputes are able to be raised simply at the click of a button through Capitalise’s platform, which is available to their clients. There you can launch two different products – one is debt recovery for invoices over £1,000, and the other is commercial disputes.

What circumstances can Capitalise Recovery help with?

There’s a number of deciding factors that are used to identify when a client ought to use the Capitalise Recovery service. Some of these are:

• Companies with individual debtors over 90 days old
• Companies that have lost a client and haven’t been paid
• Where a commercial discussion didn’t meet a satisfactory resolution
• Companies with a bad debt provision
• Companies that have decided not to pursue a legal dispute due to the potential time drain and/or large legal fees (this can often feel like a David Goliath situation, such as this case study here)
• Companies that have written off debt within the last 3 years without any form of escalation prior to writing off the bad debt
• Any invoice worth over £1,000 that hasn’t been paid

So far we have received a steady pipeline of cases and been able to advise numerous businesses on their realistic prospects of success. Many cases come to us at the point where an unsuccessful debt collection attempt has already been made.

In conclusion, Capitalise’s main goal is to facilitate getting money into balance sheets – whether that’s through helping them gain access to funding, or giving teeth to clients to fund a litigation procedure. Cashflow is vitally important in these crucial times.

Co-founder and CEO of Capitalise Paul Surtees recently spoke about the new Capitalise Recovery service on this recorded webinar.