It is understandable that businesses will frequently have a standardized internal procedure for collecting in debts. Perhaps reminder letters to debtors after 14 days, followed by more serious letters making reference to having to take action and then, probably as a last resort, a referral to solicitors for debt collection proceedings.
But does a one size fits all approach achieve the best outcome for your business?
Getting paid was always problematic but during the last 18 months there have been two additional complexities impacting on the market place. Primarily, the effect of Brexit which will benefit some businesses but hamper others putting stress on their finances. Secondly, the unprecedented impact of the Coronavirus pandemic which has devastated many businesses in the hospitality and travel sector and touched every other business in some way.
Jonathan Mortimer, Consultant Partner at Raworths says: “Both Brexit and Coronavirus have highlighted the need more than ever to have a tailored approach to debt collection for businesses. In particular, to be sensitive to the individual debtor’s circumstances, their risk profile and what can be realistically achieved by a debt collection process at the present time”.
Among the many factors that businesses need to consider when developing an appropriate debt recovery strategy, are:
The Government has attempted to encourage creditors to avoid the temptation to pursue debtors as in previous years to allow a period of recovery for businesses. Indeed, in some areas, the Government has even prevented any enforcement action being taken.
A possible strategy for businesses could include:
It is also important to stress that the quality and possible preservation of the existing commercial relationship will be key. In particular, how important is the customer to your business and do you trust them?
Legal proceedings do not have to be the first option.
Among the possible debt recovery routes businesses might consider pursuing are:
We should also just provide a warning about debtors based in the EU. There is uncertainty which exists around the continuation of reciprocal arrangements for enforcement of debt in the EU. It should not be assumed that debt collection involving customers in the EU will be as straight forward as previously and consequently problem customers within the EU should be monitored carefully.
Using our in-depth understanding of the commercial debt recovery process and the various forms that this may take, our experienced lawyers can help you to come up with a workable and effective debt recovery plan that maximises your chances of recovery and which is also sensitive to your own commercial needs.
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.
Published on 5 August 2021