There are numerous myths and commonly held assumptions surrounding debt recovery, what is clear is that it is a very real problem for thousands of businesses each year. Ervin Shakaj from our Dispute Resolution team explains the realities of pursuing debt.
1. The Court system has no teeth against unwilling payers so there is no point pursuing legal proceedings
It is true that if a business or an individual has no assets at all then it is indeed unlikely that you will make a recovery of your debt. The key at the outset is to know your customer and ascertain how much credit, if any, you are prepared to give them.
In the event that your customer does have assets, you can be sure that they can be pursued for the debt. Appropriate applications to the Court can unlock mechanisms that can extract money from debtors, for example by instructing a County Court Bailiff or High Court Sheriff any valuable assets owned by the debtor can be taken away, they can secure a charge (like a mortgage) against any property owned by the debtor and ultimately force a sale, ring fence any known monetary sum owned by the debtor but held by a third party, ask the Court to make an order that the debtor’s employer pays a proportion of the debtor’s salary to you each month and further to bankrupt the individual or wind-up the company debtor. Consequently, we have faith in the Court system that the powers are there to secure payment as long as money or assets held by the debtor can be located and can be reached first.
2. The costs of taking legal action frequently outweighs the debt being pursued
It is the case that debt of relatively small value (say £2,500 or less) owed by a reluctant debtor cannot easily be pursued cost effectively with the services of a qualified lawyer. However, a proportionate response to debts of a larger amount should be cost effective, subject to the ability of the debtor to pay the debt claimed.
It is important to carry out searches as to the financial standing of the debtor before embarking on expensive legal procedures to avoid the risk of spending money on the process unnecessarily. Further, if successful, ordinarily all the court fees incurred with taking action and a contribution to the legal fees incurred by the solicitor acting on a client’s behalf can be recovered from the debtor. It is also important to remember that interest can be claimed on the debt either in accordance with your terms and conditions of business or in accordance with legislation which can also indirectly contribute to the costs incurred.
3. Considering the time it takes to pursue debtors you would be better spending your time on something else
It is true that there are some instances of debtors being pursued for many months if not years for payment of a debt. However, this is very much the exception. It is an estimation that 50% of debt claims are resolved between a matter of weeks and no more than two months and a further 40% within six months.
It is important to appreciate that the Court rules prescribe for appreciable periods of time to be provided to individual debtors to respond to a debt collection procedure. Further, delay is built into the Court systems which is beyond its control. In the event that debtors enter a form of insolvency, then appreciable delay can also be experienced as the management of the debtor’s debts is more generally managed by the Insolvency Service or an Insolvency Practitioner. Further, sometimes the best outcome is to accept payment by instalments which can extend substantially the time it takes for the debt to clear.