Recovering a debt quickly is an essential part of ensuring your business remains in good financial health, but when you are busy focusing on attracting new custom and fulfilling current commitments it can be easy to forget this. As a result, procedures put in place to keep cash flowing in can become overlooked and you end up adopting a scattergun approach to debt recovery that is neither effective nor efficient.
In this article Lisa Waghorne, commercial debt recovery lawyer with Stephens & Son in Chatham, highlights six of the most common debt recovery mistakes she sees and the steps you can take to avoid them.
Inconsistently applied credit control procedures
Most businesses have a credit control procedure in place which details the steps that ought to be taken when an account becomes overdue. A big problem we see is where this procedure is ignored or applied inconsistently and then this leads to debt levels rising and debtors thinking late payment is acceptable. Credit control procedures are there for a reason and it is important that they are followed.
Failing to act for fear of causing offence
Telling a customer that you plan to get a solicitor involved can be a difficult thing to do and is something we know many businesses struggle with. The thing to remember is that you have already written to them once asking nicely for payment to be made so now it is time to get a little tougher.
Do not worry about causing offence; the debtor is in business too and should understand the importance of prompt payment in maintaining good cash flow.
Failing to send a solicitor’s letter
If you say you are going to pass the account to your solicitor for collection then you need to make sure that this happens. In too many cases, we can see from past correspondence that a threat to involve a solicitor has been made but then not followed through until months or even years later. This sends out completely the wrong message and is likely to encourage further default.
You need to make sure that a letter from your solicitor follows hot on the heels of your warning shot and makes it clear that if payment continues to be withheld the next step will be the instigation of legal proceedings.
Jumping the gun by going straight to court
With so much information available over the internet, we are seeing a big increase in the number of businesses trying to go it alone when collecting debts. This is fine in theory, but you can find yourself running into huge problems if you decide to go straight for the jugular by issuing court proceedings without following any of the pre-action rules that now exist.
By using a solicitor you can ensure that these steps are taken and you do not expose yourself to the risk of being penalised in costs for failing to follow the correct procedure.
Failing to consider alternative debt recovery avenues
Contrary to popular belief, going to court is not the only way of ensuring you get paid but it is surprising how few clients we see are aware of this.
For example, where the debt is admitted it might be possible for you to use the statutory demand procedure instead. With this option you serve formal notice requiring the debt to be settled within 21 days, in default of which you will be able to apply for the debtor’s business to be declared insolvent and, trust us, nothing focuses the mind of a reluctant payer more than the prospect of being put out of business if they continue to try to dodge their financial responsibilities.
Where the debt is disputed, you might find it more helpful to refer the matter to a mediator who can help you and the debtor work together to broker a mutually acceptable deal. You can continue to take legal advice throughout the process to ensure you do not give ground where it is not in your interests to do so, but equally you will have the freedom to agree terms that might not otherwise be possible were the matter to be referred to court.
Failing to enforce a court judgment
It is concerning how many clients we see with judgments in their favour stretching back three or four years which they have sat on because they do not know what to do with them.
We cannot stress enough how important it is to ensure that where a judgment has been obtained you take steps to ensure the terms of the ordered made are honoured where you know or suspect the debtor has the means to pay.
There are a range of enforcement options available, from bailiff action to insolvency proceedings and advice should be sought on the route most appropriate for you to ensure you get paid and the matter can finally be closed.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.