Unpaid invoices strangle cash flow and deplete the working capital needed by Nigerian small businesses to sustain operations. When internal follow-ups yield nothing but broken promises, continuing to deploy sales or admin staff to chase debtors becomes a costly drain on administrative resources.
Handing over a delinquent account to an external collection agency or recovery specialist is often the most practical way to salvage the margin on a contract. Executing a handover to a debt collection professional requires a structured approach to protect the business from legal liabilities and preserve the chance of recovery.
When to stop internal recovery efforts
A common mistake among African founders is waiting too long before seeking external help. As debt ages, the probability of successful recovery drops significantly.
For most small and medium-sized enterprises (SMEs), a debt that remains unpaid 90 to 120 days past the due date is a prime candidate for external intervention. By this point, the administrative cost of constant phone calls and emails likely exceeds the value of the time spent.
SME owners should calculate the internal cost of chasing payments. If senior managers are spending hours negotiating with a single defaulting client, those hours are being diverted from revenue-generating activities.
Preparing the documentation trail
A recovery professional cannot operate effectively without clean, verifiable evidence of the transaction. Before initiating a handover, the SME must compile a comprehensive debtor file.
This file must include the executed contract or service level agreement, accepted purchase orders, signed delivery notes, and all issued invoices. Evidence of delivery or project completion is critical, as debtors often manufacture disputes about quality to delay payment.
The file should also contain a complete log of all communication regarding the unpaid balance. WhatsApp conversations, email threads, and written payment promises serve as crucial leverage during the recovery process.
Selecting and instructing the collection professional
In Nigeria, debt collection is typically handled by specialized recovery firms, legal practitioners, or licensed agents. It is important to verify that the chosen professional operates within legal boundaries to avoid reputational damage.
SMEs should seek agencies that work on a contingency fee basis, often referred to as “no recovery, no fee.” This model ensures that the collection professional only earns a percentage of the actual amount recovered, aligning their incentives with the business.
The terms of engagement must clearly define the fee percentage, which typically ranges from 10% to 30% depending on the age and size of the debt. The agreement should also specify who bears the cost of legal litigation if court action becomes necessary.
Additionally, founders must instruct the collector on the preferred approach. If there is still a possibility of future business with the client, a soft, diplomatic collection strategy should be specified rather than aggressive legal demands.
What to do next
To protect your business cash flow, review your aging receivables ledger today. Identify any undisputed invoice that is more than 90 days overdue and compile the supporting contracts, delivery notes, and email correspondence to prepare for a professional handover.
