We receive enquiries many clients who are owed money by third parties – companies, partnerships and individuals.
Monies can be owed for one or more of any number of reasons – rent arrears (commercial or residential), contractual debts, judgment debts, book debts, unpaid trade accounts – and it vital for many businesses in the current financial climate to recover monies owed in order to sustain cashflow.
Below are five tips to help ensure a smoother (and hopefully more productive) debt recovery process.
Keep in regular contact with your debtors – both in writing and by telephone. It is often easier to separate the ‘can’t pays’ from the ‘won’t pays’ by a telephone call.
- Chase debts by letter
If a debtor fails to make payment within an agreed time frame, send a chaser letter clearly setting out the position. Think about whether you wish to continue your business relationship with the debtor when setting the tone of the letter. This will aid in establishing or bolstering the all-important paper trial.
- Keep records
Copies should be kept of all email and written correspondence. Make contemporaneous notes of telephone conversations and follow up these conversations with emails or letters confirming the position.
- Be organised
Separate the debt recovery file from other papers and keep records of all progression. Diarise to chase debtors on the expiry of time limits and act when you say you are going to act.
- Take legal advice
Where the above measures do not yield payment, seek legal advice. A solicitor can advise you on your most appropriate next steps.
Can’t pay v Won’t pay
There are some debtors who can’t pay and some who won’t pay.
When armed with proper legal advice you can make an informed decision as to how you wish to approach a debtor.
My debtor can’t pay
With a ‘can’t pay’ (in full) debtor, the most appropriate option might be to agree a schedule of payments.
Obviously, getting paid in installments is not ideal, however some payments are better than nothing and this has the advantage of potentially maintaining a good relationship with the debtor.
Get this in writing, that way if the payments are not made as agreed, you have written evidence and can prove that the debt is not disputed and that your customer has failed to repay their debt by defaulting on the agreement.
This has the advantage of not involving the courts, it is relatively quick and inexpensive and can prompt quick repayment or proceed to next steps.
Won’t pay – next steps
With a ‘won’t pay’, the creditor has more options to recover the debt from the debtor.
If a money claim is issued then your debtor will be able to continue to trade and will simply be ordered to pay the amount owed to you.
If insolvency proceedings are undertaken (only if the debt is not disputed or the value of the debt is for a sum over £750) this will ultimately result in your debtor being made bankrupt (individuals) or wound up (companies), and therefore having to cease trading.
More often than not the instigation of either insolvency proceedings or a money claim will lead to the debtor coming to the table with payment or settlement proposals.