This is the second in a series of articles written by Krystene Bousfield, Solicitor and Head of Debt Recovery at Travlaw . During the coming months, Krystene will delve into the sometimes uncomfortable, but 100% necessary, world of debt recovery, providing tips, advice and helpful assistance to enable you and your business recover monies to which you are entitled – be that from suppliers or customers.
This series of articles is very much intended to be interactive, so please get in touch with any feedback or specific queries you may have.
This week – “Know your Debtor”
In last week’s article, we looked at how businesses can improve their internal workings in a bid to avoid the need for formal debt recovery action. Unfortunately, no matter how hard we try or what attempts we make, debtors will refuse to pay, leaving us to consider taking the next step – legal action.
When I am approached by any client that wishes to commence legal action, the first question I ask them is ‘what do you know about the debtor?’ In this week’s article we consider why that is an important question and what action you and your business can take to improve your success rate when it comes to debt recovery.
The fact of the matter is, a debtor can only pay if they have the means to.
I have witnessed too many times the elation that a client experiences when obtaining a court judgment, only to then discover (sooner rather than later) that the judgment is simply a piece of paper, and actually obtaining cold hard cash from the debtor, (which is what most people want after all) is a different game altogether.
For example, your supplier might owe you £50,000. Invoice them and you do not receive payment. Send them a 7-day chaser letter and you do not receive payment. Cease doing work for them in a final attempt to get them to pay and … lo and behold – you do not receive payment. £50k is a large sum of money and so you decide to commence court action. Having personally coughed up the legal fees, (most likely in excess of £2.5k for court fees alone), the debtor remains ‘schtum’ and you receive Default Judgment – happy days! But this is only the start of the procedure…
What if your supplier is a sole trader, with no assets to their name? What if the debtor is a limited company, but has failed to file its accounts and is on the verge of liquidation? How are you going to get your money? Ideally, you want to know all of this information in advance, so that you know who you are dealing with and with whom you are entering into business.
What information should you obtain in advance?
The most vital pieces of information are undoubtedly;
- Who is it that owes you money?
- Are they an individual, limited company or ?
It never ceases to amaze me how many clients do not in fact know this information, despite the fact that they have been doing business with the debtor for perhaps years. If you have a contract signed by ‘Joe Bloggs trading as Joe Bloggs Limited’ – can you pursue a big Limited company for your cash, or are you going after an individual without a penny to his name? It could well be the latter.
Secondly then, does this debtor have the ability to pay?
If the debtor is an individual, sole trader or a partnership, you may want to find out whether they are a homeowner; if so, is there equity in their property? Is the debtor employed and, if so, where? Do they have any assets – a car, boat, goods of value?
Another factor to consider when recovering debt from an individual (and one we will consider in detail in a later article) is whether any additional factors such as their age or state of health need to be taken into account.
If the debtor is a limited company, or an you may want to establish the state of their accounts; do they own property, or assets? Do they have any CCJs already registered against them and if so, for how much? What is their status on Companies House? Who are the Directors? Who else are they currently working with and are there any ‘murmurings’ in the industry as to their current financial state?
Most, if not all, of this information is readily available however we are able to assist in the process and will always recommend that the above information is established before commencing debt recovery action on your behalf. It really is worth putting in that little extra bit of time and money so that you know your debtor and know whether enforcement action against them is worth pursuing.
If you would like any advice on the debt recovery process, or would like to know more about the background checks that we can carry out on your behalf, please contact Krystene Bousfield
Next week’s article
‘There’s no such thing as a free holiday’ – Chargebacks and how to fight them
This article was originally published on: 3 February 2020