Tips for tackling debt recovery

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Business debt can be a big problem for companies both large and small. In fact, a recent survey reported that UK SME’s wrote off a combined debt of £5.8bn in the financial year ending April 2015, with the average company being owed an estimated £62,957 at any one time. These figures are quite concerning, especially when you consider the knock-on effect such debts could have on a business and the potentially fatal consequences for a company if large debts end up having to be written off.

There are of course several steps that can be taken to recover debt before more severe courses of action need to be considered. In any event, writing off a debt would only happen in a narrow set of circumstances and after all other courses of action had been followed.

Here are some tips on tackling debt recovery in the early stages, before it becomes a serious and potentially costly issue.

Know your customers

One way to try and prevent issues surrounding non-payment of invoices is to know your customers. Before extending any credit terms to a customer, you should do some due basic diligence research so you know who you are dealing with. It is common commercial practice to take upfront payment for goods from new customers, only extending credit terms to them after a period of working together. It is also important to have a strong hold over your credit control and take action on overdue invoices straight away.

Talk to the debtor

If the missed payment appears to be a one off, or else you want to try and maintain a relationship with the customer, you should firstly take an informal approach to chasing the debt. Discuss the situation with your customer and try to resolve any problems so that you can reach an agreement. Whilst it is important to take a firm approach and express the next steps that will follow should the debt not be paid, you should also try to remain reasonable and fair so as not to alienate the customer. It may be that there has been a genuine error, or else the client might be experiencing temporary cash flow issues. In either event, you will need to agree a way forward with the client to try and resolve the situation, ideally setting out a deadline by which the invoice will be paid.

Get solicitors on board

Should you not have success resolving the matter in house, the next step would be to get a debt recovery solicitor to issue a letter before action or late payment demand. Both of these can be effective in generating the desired response and the latter also allows you to claim interest, compensation and your reasonable debt collection costs under the Late Payment of Commercial Debts (Interest) Act 1998.

Consider next steps carefully

Should all of the above methods fail, it may be that you need to consider formal court proceedings for debt recovery. Before doing so, it would be advisable to firstly evaluate the financial position of the debtor to establish whether they are in a position to be able to pay off the debt. After all, formal proceedings can be costly – especially if there is realistically no chance of recovering any or all of the debt.

If you have tried to recover a business debt yourself and now need legal support to pursue a stronger course of action, please contact us. Our commercial litigation team are able to offer help and advice in relation to debt recovery, including issuing letters before action and late payment demands, and starting formal debt recovery proceedings. Please contact us here.

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