How to handle debt recovery

All dental labs are at risk of cash flow problems and debt. Here, Ashley Byrne discusses the best method for dealing with debt recovery without destroying customer relationships.

Richard Branson famously quoted, ‘Never take your eyes off the cash flow because it’s the life blood of the businesses’, and he couldn’t be more true.

Companies don’t die due to being unprofitable, they die as they suffocate from lack of cash flow. You may be running at a 40% margin, but if no one pays the bills and the outgoings outstrip the income, a company can suffocate itself in an alarmingly short period of time.

All labs are at risk

For many dental technicians, the lack of payment from dentists and practices is ‘unique to our industry’, but it’s the same in any industry that invoices. From builders to solicitors, we all suffer from late payment at times, and customers who continually pay late can become a major problem to a business – especially if they become a large customer.

We do a lot of full arches, and some clients can easily rack up a bill of £20k a month. We offer 30 days payment so that can be £40k within just over a month. If they slip for two months, you are suddenly £80k down, and that is an eye-watering amount.

Cash flow and debt recovery goes hand-in-hand and it’s essential to have a good established process. In 17 years of running my lab, I’ve never had to go to small claims court, but I have come close.

Small lab to large lab, we are all at risk, and no lab is less at risk of falling foul of debt recovery.

At my lab, we have evolved our recovery process over the years, but the principles have always stayed the same. The two factors that need to be considered are probably not two words you associate with debt – time and relationships.

‘We all have problems’

Debt is stressful for everyone on all sides. No business owner wants to be owed; no business owner wants debts that are being chased. It takes time, it’s stressful and it keeps people awake at night.

When people owe money, we naturally presume they are ignoring our calls as they simply don’t want to pay. They are living their lives to the best, driving a nice car and your little lab is the least of their concern.

Trust me, it’s very rarely the case. Your debt will be playing on their mind, it will be keeping them awake, and if they could pay it, they would.

It took me a long time to realise this. In the early days of my lab, a client totally lost his cool with me when I raised the fact that he owed me money. His response was, ‘I’ve got school fees to pay, my partner wants a flipping holiday, the car needs a service, and you are one of a bunch who all want paying.’

I lost it. I mean, school fees? And he’s not paying my lab bill? ‘My partner wants a holiday?’ And he won’t answer my emails? How rude, how arrogant, and what about my life and my problems!!??

And that’s just it, we all have problems. It’s easy to have cash flow problems at work and at home. Did you know that it’s estimated that around 40% of all divorces in the UK have financials listed as a major factor and half of couples say they argue over money?

Calm the situation

I will say before I’m lynched on social media that I am not stating that it’s acceptable to pay the kids’ school fees and go on holiday and not pay the lab. What I will state is that you are low on the priority list, and for debt collection to work well, you need to get yourself up that list of priorities.

And that is where relationships come in. Barking back at the client (as I did) solved nothing. Instead, it irritated everyone and it certainly didn’t speed up the recovery.

Threatening a client that you are holding back work only irritates the practice teams. And jumping straight into using debt collectors will ruin that relationship and bump you down the list of someone who is in financial trouble.

If we go back to the situation where the client was ranting about school fees, my answer today would be vastly different:

‘Hey chap, chill… I know life is stressful. I need my payment as much as the school needs their fees, so let’s chat about the best way to do this – I don’t want to add more stress. How about a structured payment plan? Did you know I take credit cards? Maybe we can split it over three months?’

In my experience, calming the situation results in nearly always getting paid.

Keep the financials separate

Businesses are built on relationship, yet money can destroy those relationships. Debt collection is always an awkward situation and that’s why the lab owner should ideally never be involved.

It’s been over 15 years since I asked a client about money, and I doubt I will ever ask again. Even when we were a lab of three people, we tried not to get involved. The story I mentioned earlier in this article is a great example of why you shouldn’t get involved, but the main reasons run much deeper than that.

When I call or email a client, it’s technical. It’s never money. I either outsource the debt recovery or my business partner (my wife) would make those calls. I now have a person dedicated solely to debt recovery, but I’m a 50+ person lab and I know that’s not possible for everyone.

However, keeping it separate builds a relationship, and that relationship is strong. There is a slight awkwardness when I talk to those customers, and most often they will usually apologise without even asking. I’m putting myself up the priority list to be paid.

Give it a go

Of course, a good relationship doesn’t always solve it. Sometimes we do need to call in companies like ‘Expert Collections’ from the DLA, but it’s rare these days that we do that.

We do all we can with the relationship, but sadly if that does break down, experts and outsourcing is our next stage. It distances us from the relationship, and it is easier to simply pass that on.

It’s rare we need to use this company, but when we do they have always delivered and the costs are passed on to the client, not yourself.

Cash flow and debt collection is always a challenge for any business owner, but relationships are an area that I rarely see discussed, so try it and see. It’s worked for us, and we have been running for over 17 years now.

It’s just another tool for us to help run our businesses.

Catch up with previous columns from The Lab Expert:

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